When Aetna Inc. announced their plans last July to acquire Humana for $37 billion it was not surprising. Regulatory costs are ramping up and it is increasingly difficult to add market share organically. Humana is very strong in the publicly funded Medicare space and Aetna has strength in the commercial arena. This is a merger that makes sense. Yet, as expected, Aetna is planning billions of dollars in divestitures. The insurer is working to identify a portfolio of assets that, if divested, could minimize overlap between its operations and those of Humana. Clearly they have recognized regulatory concerns and are preparing their strategy.
While the Aetna-Humana deal will likely pass regulatory clearance, it seems less likely that Anthem’s $54 billion deal to acquire Cigna will happen primarily due to the impact on marketplace competition. These mergers of the massive insurers unleash cost and quality concerns: Anthem and Cigna compete for the same customers in many markets and fewer plan options will be available to consumers if this merger is successful.
Whether this closes or not, regulatory oversight and network management costs will increase. It will become increasingly difficult for new competitors to enter the market with competitive discounts as complexity increases in health insurance delivery and provider contracting. I hate to admit it, but regulators will be needed to protect consumers in a market where competition is shrinking, However, I have concerns with whether they can keep up with the continuous change.