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Jun 2015

Merger Mania Grips The Health Insurance Industry

There is no question the Affordable Care Act (ACA), a.k.a. Obamacare, is changing the health care industry. There has been a rise in health insurance premiums as well as deductibles and co-insurance payments for patients. Now Wall Street is buzzing about the rumblings of super-sized mergers of commercial health insurers.

On Monday, June 15, the largest tremors in the industry first shook with four of the largest health plans mentioned as possible dance partners. Wall Street experts are stating this talk is part of an uneasy feeling in the air while the nation awaits a ruling by the U.S. Supreme Court that could strike down all or parts of the Affordable Care Act.

The merger talk in the commercial health insurance business involves many of the industry’s big dogs: Anthem/Blue Cross, Cigna, United Healthcare, and Aetna. The Supreme Court is expected to rule on Obamacare on the critical issue as to whether the health care subsidies and federal insurance exchanges that handle ACA plan sales in many states are constitutional.

The legal issue before the Supreme Court concerns “opt-out” states where the Federal Government operates the health insurance exchanges. The ACA provides purchasers on these exchanges with tax credits, based on their family income, age and number of people, to help make their premiums affordable. However, the critical act language centers around the ACA specifically discussing tax credits being offered through an “exchange established by the state.”

If the Supreme Court holds to a strict interpretation of the ACA wording, then the Court would have to hold that the tax subsidies would be available only in the states that established their own exchange. The Federal subsidies provided to exchange enrollees in 2014 and 2015 could be eliminated, which would cause major chaos in the health insurance industry.

On June 16, The Wall Street Journal reported that Anthem is making a bid for CIGNA, currently the fifth-largest U.S. health insurance company based on enrollment. Anthem Blue Cross, the 5th largest for-profit health insurer in California, had already been named as a possible bidder for Humana.

AETNA reportedly is also interested in purchasing CIGNA. United Health Group Inc. (United Healthcare) is making inquiries about acquiring either AETNA or CIGNA, who has also been rumored to have approached Humana about a merger. Other names playing the musical mergers game include; Health Net, Blue Shield of California. Care1st and Molina Healthcare.

So why the sudden merger talk surge? As the Supreme Court decision nears with a lot of uncertainty, U.S. health insurance companies stock prices have been soaring with the new business brought in by Obamacare. The ACA added millions of new policyholders who do not have insurance through their employers, but the influx of these new enrollees also severely limited the commercial plans’ profit margins. It is estimated that in the ACA-era, a health insurance company must spend 80 to 85 percent of the premiums received paying provider claims. Wall Street is confident that these mergers will produce better revenues as business is streamlined. Opponents raise concerns of less competition in the insurance marker driving up premiums even more.

The U.S. Supreme Court heard all the legal arguments on whether people in states where the Federal Government runs the health insurance marketplaces are eligible for subsidies that help them afford the cost of insurance. The Court’s ruling is expected later this month or early July. If the Supreme Court justices decide against subsidies in the Federal marketplaces, millions of Americans would be affected.

According to The New York Times, if the court rules against the Obama administration in the King v. Burwell case, about 6.4 million people may lose their subsidies in 34 states that use the Federal Health Care marketplace. The status for people in Oregon, Nevada and New Mexico is unclear because those states at one time intended to run their own marketplaces, but now rely on the federal government to manage them..

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