Consolidation: Good for Corporations, Bad for Consumers

I wrote the following in Health insurance consolidation was written into PPACA, and now it’s happening,

It doesn’t require any super powers to conclude that higher costs combined with lower profit margins will require insurers to achieve greater economies of scale. In short, health insurance have to get bigger in order to remain profitable. Smaller companies will go out of business or be bought by the larger insurers and the result for the consumer is fewer choices from fewer companies.

In the past several months, we’ve seen announcements of potential mergers and sales of health insurers. These announcements involve some major players. back in April, Assurant announced plans to sell off its Health and Employee Benefits units. Anthem, Aetna and Cigna have all been mentioned as possible buyers. At the end of May, Humana announced that it was for sale. And at the end of 2014 Blue Shield of California announced the acquisition of Care1st in California.

We’ve seen financial statements of major players like Health Care Services Corporation, Moda Healthcare, BCBS of Tennessee, in the red on their PPACA Exchange business. I’m sure there are others.

Health insurance, and to a lesser extent, dental insurance, is being commoditized. Price sensitive health exchange shoppers with no prior physician preference combined with regulation that standardizes health plan benefits, means that the only remaining competitive advantage for companies wanting to compete for business on the exchanges is price. Scaling up in the back end operations is the only way left to compete on price, so that getting bigger is the only strategy available to survive this new order.

This wave of merger, acquisition and sales announcements is only the beginning. Should the premium assistance credits continue after the SCOTUS decision later this month, this brave new insurance world will devolve into a few large carriers offering a standard product to consumers. The only choice consumers on the exchanges will have left is which mega-corporation they want to direct their federal premium assistance payment toward.

What this all means to you and me is as I wrote in The Re-Emergence of the Robber Barrons

So why does this benefit to the largest companies come at the expense of the individual? First, individuals are required under the law to purchase new or more expensive product than they currently have. Secondly, the individual will be forced to purchase that product from a smaller set of providers. Less competition or threat of competition always equates to higher prices and reduced levels of service. So the individual will ultimately be forced to pay more and get less for their insurance dollar.

PPACA is effectively a huge transfer of wealth from taxpayers to the health insurance corporations. The first “A” in PPACA stands for Affordable.


The joke’s on you…and me.