Ask just about anyone on the street what they think of a blockbuster merger of two mammoth competitors and you’ll be likely to hear: “It’s bad: less competition means higher prices.”

Insurer consolidate 2Such intuition might be sound in many cases — but not necessarily in the case of the impact on employer health-care costs from Aetna’s recently announced plan to buy Humana, or other deals under discussion that would further consolidate the health insurance industry.

A combination of Aetna and Humana — or Cigna and Anthem, which also are talking about a deal — would create an entity able to win more favorable contract terms from medical providers.

“Scale is becoming increasingly important when you look at the technology investments needed to do more sophisticated data analysis to figure out how to help people be healthier,” says Jim Winkler, chief innovation officer at Aon Hewitt Health. “That requires capital. But scale will also give health plans better negotiating leverage. Providers obviously won’t love that, but it will help the health-care marketplace move faster toward payment for value instead of paying providers on a fee-for-service basis. And that’s a good thing.”

It may be counterintuitive that consolidation could have a positive impact on pricing, Winkler acknowledges. And indeed, he says, less choice of carriers likely would enable insurers to jack up their fees for administering health plans. But the fees account for only 15% to 20% of overall health costs. “The reality is that the far bigger chunk of costs is for claims, and those costs are a function of the contracted rates negotiated between providers and insurance carriers.”

If anything, it’s consolidation among providers, rather than insurers, that employers should be worried about, according to Winkler. There is substantial activity in that arena today, with hospital systems merging and buying up physician practices. “That’s starting to lead to increased cost,” he says. “A hospital that buys stand-alone physician practices is essentially turning itself into an out-patient facility but charging more for that” than the stand-alone practices did.

But, he reinforces, he expects the negotiating advantage would tip toward new mega-insurers, if the announced and potential deals are completed, regardless of bigger provider groups. “Net net, if it all plays out the way it should, it would be favorable to the health-care [cost] trend.”

So far, most employers seem not to be grasping the concept. During a recent webinar attended by 100 of its clients — mostly human resources officers but also some finance executives — Aon Hewitt polled them on how they believe insurer consolidation would affect their benefits plans. Forty-six percent said they expected a negative impact, compared with only 21% who foresaw a positive outcome.

More than half (56%) of the participants said they would take some action in response to consolidation. Most of those said they’d reassess their choice of health-plan providers.

For Winkler’s part, while he says such re-evaluation would be prudent, he sees the gloomy forecast on the effects of consolidation as shortsighted thinking.

To be sure, there are visible concerns — not only having less choice of carriers, but also that big insurers would be distracted from innovation during the integration process.

“Aetna and Humana have two claims systems, two administrative models, different clinical approaches to managing care, and different sales forces and leadership teams,” he says. “Bringing all that stuff together into one company would be distracting. Insurance leaders who would normally be thinking about new client solutions or be out in the marketplace talking to customers would have to be in meetings talking about things like who should run the sales office in Topeka.”

Still, that’s a short-term concern, he notes. In fact, the reduced roster of health insurers may be as well. “If employers have less choice, inevitably new solutions will emerge [in the form of] regional or local health plans,” Winkler says. “The next logical step for the hospital systems that are buying physician practices so they can have an integrated delivery system would be buying or renting claims processing capability, [thereby] becoming local health plans themselves.”

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