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What Aetna Merger Means for You

By snapping up competitor Coventry Health Care, Aetna became the latest insurer to consolidate costs — and coverage — in response to the nation’s health care reform. It’s a trend experts say will likely accelerate in coming months, and one that could have far-reaching impact on consumers and investors.

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Announced Monday, the Aetna deal is the third acquisition by a large insurer over the past year: WellPoint said in July that it would buy Amerigroup, and last October, Cigna agreed to buy HealthSpring. But analysts and investors say this is only the first wave. “I think it will be more of a trend going forward,” Lou Stanasolovich, president of Legend Financial Advisors in Pittsburgh, says of the acquisitions. “It changes the playing ground a little bit.”

For large insurers, the mergers are a way to grow membership and lower costs — which could be a boon for investors. For consumers, there will likely be fewer health care providers to choose from, but experts say that isn’t necessarily a bad thing. Here is a look at how consolidation of the health insurance industry could impact you.

While the additional regulations and fees stemming from the Affordable Care Act are expected to weigh down health insurers, analysts say consolidation may help the companies offset some of those downsides. Even though the law will require more people to buy health insurance, the growth will be in private and government plans, experts say. So many insurers will need to absorb smaller competitors in order to grow membership, says Phil Seligman, an equity analyst with S&P Capital IQ specializing in managed health care. Insurers should be able to use the greater membership base in order to lower the rates they pay hospitals and doctors in certain areas, he says. The mergers could also help them lower their overhead, spreading administrative costs across a larger number of members, says Alex Morozov, director of health care equity research for Morningstar. Those potential savings could help insurers offset the added costs and restrictions of insuring people under the Affordable Care Act, such as a requirement that insurers spend a greater portion of premiums on medical services, analysts say. “From an investor’s perspective it does make the insurers more attractive,” says Seligman.

Analysts say the mergers could also make insurance companies a more appealing investment by better positioning them to benefit from the Medicaid expansion planned under the new law — Aetna says the share of revenue it gets from government business will increase to 30% from 23% as a result of the merger. While it’s still not clear how many states will expand Medicaid coverage, Aetna says its Medicaid business will now span 14 states, up from 10. That expansion also gives the insurer a greater chance of adding members who enroll in both Medicaid and Medicare, known as “dual eligibles,” says Seligman.

That said, insurers’ actual savings will vary across regions. In some areas, hospitals may have more clout than insurers do, says Seligman. And while the company being acquired gets an immediate boost — Coventry’s share price jumped 20% on the news today — it may be a while before Aetna sees lower costs and added revenue, says Stanasolovich.  Some investors willing to take on more risk may want to shop for smaller insurers, with market caps of $5 billion or less, that could potentially be targets for acquisitions later on, says Morozov.

The mergers could provide Aetna and other large insurance companies with huge crops of new patients, but experts say the consolidation could also lead to higher premiums for consumers and fewer options in health plans on the market. “If you get to the point where there are very few plan choices, you may end up not being able to find a plan that suits you,” says Marc Steinberg, deputy director of health policy for Families USA, a consumer health care advocacy group.

Consumer watchdogs say they are keeping a close eye on the mergers, concerned that as large health insurance firms buy up their competition and dominate more of the market, they will face less pressure to keep premiums affordable and may end up working with fewer doctors and hospitals and restricting coverage for important procedures and drugs. “They may be doing things that will restrict what they’re going to have to pay out,” says Bonnie Burns, a consumer advocate with California Health Advocates, which represents the interests of Medicare beneficiaries. Aetna says cost savings from the merger will allow it to offer customers “more affordable products and services.”

To be sure, some experts say paring down choices could actually benefit consumers in the Medicare market, where members are often overwhelmed by the plethora of options under the program. And some consumers may be better off with plans from the larger firms, since smaller insurers may be forced out of business if they are not acquired as the insurance market continues to consolidate. With Aetna and other companies adding Medicare Advantage and Medicare D lines to their plans, they may be able to continue covering workers into retirement; previously, consumers might have had to switch to a separate insurer offering those programs. “They’re going to essentially be able to provide their health care for a longer period of their lives,” says Gavin Magor, a senior financial analyst at Weiss Ratings.


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    • I agree my company went with Aetna and it has been living hell with them..

    • it will mean higher rates & less coverage.

      ‘sides aetna sucks – they’re the worst medical ins company i’ve ever had to deal with in my working career. I wonder how much $$ & big screen tvs, trips, etc. they gave to my company’s benefit dept to choose them..

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    • A few years back, one of the larger insurance companies (name withheld) decided that the Main Line hospitals were charging too much and they were to be removed from the “Preferred” vendors list, allowing patients to be charged “out of network” rates at convenient hospitals. Word got back to the insurance company that were this to occur, every single investor and fund based in Philly would short that stock, with a precipitous follow on decline. Reason prevailed and the proposed cuts never happened. Banded consumers acting in self-interest can still be a market force.

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