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Health insurance plans pair up to meet growing Medicaid, Medicare business

Posted: September 9, 2012 at 6:16 am

There will be fewer, bigger health insurance players in Ohio after this year thanks to a series of acquisitions. But how will these deals will affect cost and competition?

This year saw more industry consolidation as health insurers realign to meet growing business in Medicaid, the federal-state health insurance program for the poor and disabled, and Medicare, the federal health benefit program for seniors.

I dont think down the road any consumer is going to be well served by having four, five or six very large for-profit health insurance companies serving the country and I dont think anybody really wants to see that happen, said Pamela Morris, president and chief executive officer of Dayton-based CareSource, Ohios largest managed care provider. We think there is a definite place for large regional plans like CareSource and large nonprofit health plans like CareSource.

Three of Ohios biggest commercial insurance companies Anthem Blue Cross and Blue Shield, Aetna Inc. and Humana Inc. have acquired or partnered with Medicaid companies this year. That includes Humanas strategic partnership with CareSource.

The insurer Cigna also closed in January on an acquisition of HealthSpring, a Medicare Advantage health plan. UnitedHealthcare has made several acquisitions the past 10 years, most recently last year of Medicare health plan XLHealth Corp.

Another view is these deals should not act to increase insurance costs more than they are already increasing because they involve traditionally commercial-focused businesses buying companies that focus on the government. It would be more likely to impact competition if the largest commercial insurer in the country was buying the second largest one, for example.

It does not change a lot of things for existing customers, said Peter Costa, senior equity analyst, health care, for Wells Fargo Securities LLC. At some level these companies all expect to get some synergies by being a bigger buyer of health care services. That could help lower costs for the companies and the consumer.

Managed care government contracts to administer Medicaid and Medicare has been proven to save state and federal governments money, said Michael Muntner, managing director in the health care investment banking group for Credit-Suisse.

I think youll likely continue to see consolidation, particularly among the government managed care plans. I think there is far greater growth in this sector than other sectors, Muntner said. In the government sector the price is really dictated by the state government itself. When you look at the Medicaid dollars only 20 percent of Medicaid dollars goes through managed care today. As the proportion goes up, I think the states will start to save money.

The rest of Medicaid dollars now is fees paid by the government direct to health care providers, he said.

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Health insurance plans pair up to meet growing Medicaid, Medicare business

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