Economics of Carrier Consolidation
Health care is a hot topic that ignites extreme political passion across party lines. We carry our health and its issues around with us every day… nothing is more personal or important. When we are sick, we want the most decorated physicians, most technologically advanced equipment, most effective pharmaceuticals, and best methodologies. When we are healthy, we work very hard to pay the least possible premium for health insurance.
St. Louis Medical Insurance Options
Just seven years ago, an interested group medical insurance consumer in the region would have found seven highly rated, top tier carriers providing a myriad of market options. With Aetna’s pending buyout of Coventry, we estimate three carriers will now control over 85% of the sub-500 fully insured employee market in the St. Louis region.
In a traditional capitalistic model, one must assume that a smaller number of players stymie competition thus driving higher pricing. While consolidation will most likely result in rising prices for consumers, the expectation is that carriers will do their best to combat the trend by applying even stronger price pressures on the provider (physicians, hospitals, etc.) community.
Impact on Provider Community
Providers are paid through carriers at levels that are primarily negotiated before the patient ever walks through the door. In most cases, each physician group, facility or business entity is on its own when it comes to carrier negotiations. The carriers are motivated to keep the reimbursements as low as possible to ensure their premium pricing is competitive in the market. This delicate balancing act is often tested by both sides but the macro level trend has been the provider (especially physicians) doing more for less. Leverage drives negotiations and in this space, leverage is size and market share. While consolidation is occurring on both sides of the table, the carriers have turned into Goliath to the provider’s David.
The trifecta of carrier consolidation, the government’s downward pressure on Medicare reimbursements, and the push to utilize Medicare as the “gold standard” for reimbursement pricing across the industry, has dangerous ramifications. The provider community truly doesn’t have a chance. Doctors will continue to do more with less in order to maintain their top line while inflationary expenses will greatly impact net revenue. The sad result may be qualified, competent physicians providing subpar care because of the need to drive efficiencies.
Other than the Aetna stock price, I struggle to find positive impacts at the consumer level as a result of these mergers. A call that many rally behind is that the industry needs creativity and fresh ideas which typically develop out of entrepreneurial environments – not exactly what we’re brewing right now.
As we say goodbye to Mercy, Coventry, Principal, American Medical Securities, and the independent Blue Cross Blue Shield of Missouri in our regional medical market, I can’t help but wonder, are we moving in the right direction?