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 More than 154 million people receive health benefits through
employers, many of them large national corporations. The large
employer market is a top concern for U.S. Department of Justice
regulators reviewing the Anthem deal, company officials say. The
government could block a deal if it finds evidence it would drive up
the cost of such coverage.
Anthem and Cigna, the nation's No. 2 and No. 5 health insurers, are
among a handful of carriers selling national coverage plans to
employers with thousands of workers across many states.
Anthem has said the added heft will work for employers, not against
them. A bigger Anthem, it emphasizes, could drive better deals from
doctors and hospitals and pass savings onto these customers.
In addition, Anthem has argued that there still will be plenty of
competition: large employers pit smaller, local insurers' bids
against those of large national carriers in regional markets. Anthem
officials told an investor conference last month that many employers
include health plans from several smaller insurers to cover
far-flung employees.
But an Aon Hewitt analysis of benefits data for Reuters found that a
majority of large employers buy worker health benefits from just one
or two insurers.
Among 75 companies representing a cross-section of industries, 54
percent used a single insurer and 26 percent used two, the analysis
found. Aon Hewitt, a unit of Aon Plc <AON.N> which helps employers
select their benefit plans, based its analysis on data from over 400
customers that participate in healthcare cost research.
The companies cited in the analysis for Reuters are all self-insured
and have more than 10,000 employees. It is not known how the Justice
Department will define the large employer market.
Spokeswoman Maurissa Kanter said Aon Hewitt did not conclude
"whether or not carrier consolidation would be a competitive issue
that could lead to higher prices for employers." She also said that
the data did not "support an argument for or against market
consolidation."
Several human resources directors from large corporations also told
Reuters they review potential benefits contracts from only the
biggest insurers, rather than regional players.
UnitedHealth Group <UNH.N>, Anthem, Aetna Inc <AET.N> and Cigna are
the only national players in the employer health insurance market.
It is less efficient for companies to hire multiple regional
insurers, and the merger could allow the few remaining national
insurers to raise their rates, said Peter Carstensen, an antitrust
expert and professor emeritus at the University of Wisconsin Law
School.
"The Aon Hewitt data on its face is bad for the deal and hurts their
chances of getting approval," Carstensen said.
A Justice Department official declined to comment on its review of
the deal. It is also considering Aetna's proposed $34 billion
purchase of Humana Inc <HUM.N>.
If both acquisitions were approved, it would result in an
unprecedented consolidation of the top insurers, from five to three.
Thomson Reuters Corp has benefits contracts with Cigna and Aetna. A
company spokesman declined to comment on the merger.
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LOWER ODDS OF A DEAL
Anthem has said that buying Cigna would help it drive deeper
discounts from hospitals and doctors, holding down the price of
medical coverage.
"What the Department of Justice will see is that we are going to
bring a better focus on managing the cost of care," Anthem Chief
Executive Joseph Swedish told an investor conference last month.
But at least some large U.S. employers fear they will face higher
prices if the deal goes through, according to Wall Street analysts.
Concerned employers include Detroit automakers, according to a
person familiar with the industry's position.
Other employers found merit in Anthem's assertion that the deal
could benefit customers by eliminating overhead.
"There is some chance that consolidation could lower some of those
costs," said Michael D'Ambrose, chief human resources officer for
Archer Daniels Midland Co <ADM.N>, which buys coverage from Anthem
and other Blue Cross Blue Shield plans.
The deal has raised opposition from leading medical groups,
California's insurance commissioner and Democratic lawmakers.
Leerink Partners analyst Ana Gupte recently lowered the odds of deal
approval to below 50 percent. Cigna shares were trading at a 33
percent discount to the offer price, reflecting investor skepticism
that it will close.
If the Anthem deal goes through, its share of the entire market for
employer self-insured health coverage would reach 25 percent, up
from 15 percent, according to healthcare analytics firm Mark Farrah
Associates. That would push it beyond the current No. 1 UnitedHealth,
which has a 16 percent share.
David Fortosis, a senior vice president at Aon Hewitt, said when
employers compare insurers, they do find regional and local
companies can offer discounts and lower fees based on their
relationships with local hospitals and doctor's offices. But
employers often find the hassle of managing multiple insurance plans
is greater than any discounts such insurers offer, he said. "They
trade that modest loss of savings in favor of administrative
streamlining and simplicity," Fortosis said.
(Reporting by Caroline Humer in New York and Diane Bartz in
Washington; Additional reporting by Joseph White in Detroit; Editing
by Michele Gershberg and Lisa Girion)
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