In a very interesting and wonky Twitter discussion yesterday concerning the Aetna buy-out of Humana, there was a great discussion on the business case for Aetna. Is Aetna doing this to gain efficiency or market power? The immediate consensus is that there are not a lot of efficiencies to be gained by integrating Humana with Aetna. There are a few departments that are minimally scale variant, but most of the big Mega-Corporate workforce is closely tied to the size of the covered population. A merger for those workers just means the signature on their paycheck is different and their employer sponsored health insurance is different.
However, if I worked at Humana, my particular position would be at significant risk in two years. My basic job is to be an interface between the Big Idea Geniuses with their MBA buzzword bingo interspersed with interestingly misunderstood academic work grand ideas and the people who have to implement those ideas. I am allowed to give three responses to the BIGs —“Yes”, “Yes but we’ll need three times as much time and five times the budget and do we really want to shut down Big Project Y to meet your deadline…” and “If we’re going to blow $10 million dollars, let’s have some fun with it….” If Mayhew Insurance was merging with a competitor, that skill set is extremely valuable as we transitioned from our systems to our new overlords’ sysytems. After that, either my position is redundant or the mirror position at the new overlord is redudant. Insurance companies need a few of me once they have more than a few hundred thousand lives but they don’t need ten times of me at ten million covered lives.
There are a few other areas of immediate risk at Humana. Anyone in their marketing, product development and regulatory compliance groups for states where both Aetna and Humana operate should polish their resumes. Some of the analytics and finance teams may be at risk, but most of those teams are safe.
Most insurance company jobs would be safe. Customer service reps are still needed at the same scale for the same level of customer service reps. Medical management would still be busying managing chronic diseases, sales reps would still be pounding the pavement. Claims adjusters would still be revising and fixing claims. Complaints and Grievances would still be yelled at.
Most jobs at Humana would be protected because their role would be needed assuming the combined company does not lose membership. There are some jobs that could be eliminated (mine included if I was at Humana) but there is probably not a lot of needless redundancy at any level below the VP-level (the hookers and blow suppliers will be taking a hit though).
So from this angle, most of the business case for Aetna is market consolidation/rent collection.
Yatsuno
I read something about how Aetna was most likely going to have to sell off their Medicare Advantage portion to get approval of the merger. This would likely make the deal much less attractive for them. Have you heard anything about this? And did it come up during your discussion?
Gypsy Howell
Our dream of single payer in this country may come true yet, except it will be Aetna- Humana. ?
Be careful what you wish for, I guess.
Richard Mayhew
@Yatsuno: The Humana crown jewel is their Medicare Advantage. I have heard nothing officially. However if the Federal Trade Commission (FTC) is really trying to promote competive medical markets (which they seem to be given a few recent examples), the most likely route of approval is with significant conditions including selling good size chunks of the Humana Medicare Advantage book of business. My bet is that the Medicare Advantage business from either Humana or Aetna would be for sale in states/regions where both compaines are already present as that would preserve the status quo. Humana Medicare Advantage in non-Aetna regions could logically flow to Aetna without competition concerns. If that is the case, then the value of the deal drops dramatically.
All of that is off the cuff analysis with no actual evidence or data.
retiredeng
If I had Humana as my insurance I would switch to another carrier after an Aetna takeover. Past experience with Aetna was terrible.
mikefromArlington
One major reduction would be the reduction of marketing costs.
Gene108
Isn’t consolidation / rent collection the driving force behind most health insurance mergers over the last 15 years?
There was an argument to be made that national carriers, wanting access to some local markets would buy a local insurance provider, but I think that phase of mergers and acquisitions ended 10 years ago.
Yatsuno
@Richard Mayhew: It was pretty much that, but the FTC was going to possibly have Aetna spin off all their Medicare Advantage business to somehow avoid that. I’ll try to look for the details on this later but I’m travelling for most of the day today and I can’t find my car charger. So we’ll see if I can’t dig that up before I leave.
japa21
I have been through 3 buyouts during my time in the health insurance field. The first time, I quickly looked for another job (and fortunately found one) as I knew my job was a risk (and it turned out it was as several in my department were gone within one year). The second time, of the 11 people in my department I was one of only three that survived the integration of the two companies. I am still around after the third after almost 3 years now, but that is primarily due to the fact that the product our company offered to the purchaser is unique and no one in the buying company was experienced in it.
How long that will be the case is uncertain.
MomSense
@Gypsy Howell:
I actually LOLd but I’m a fan of gallows humor.
Keith G
@Gypsy Howell: You neglected one additional element.
United Health Care. Added to the combination it would be Aetna-United-Humana. AUH.
Pronounced: Ow!!
wenchacha
I keep reading about how premiums will skyrocket next year (thanks, Obama.) Is that truly what will happen next, or more sky-is-falling nonsense from nutjobs?
Richard Mayhew
@wenchacha: If you are unwilling/unable to change insurers, and you selected a very low cost plan in 2014 where the pricing was designed to be a front loaded loss leader, then yes, pricing will be going up significantly.
If you are willing to change plans, then pricing will grow at roughly the rate of the nominal economy.
Yatsuno
@Keith G: You think Wellpoint/Blue Cross will go gentle into that good night? I think not!
And honestly, if we get the same regulations as Switzerland I’m okay with that. Universal coverage does not equal single payer. Plus until one of the states (looking at you California (side eyeing Vermont!) actually gets there first, it ain’t gonna happen nationwide unless there’s a huge expansion of Medicare. Which already failed.
WereBear
@wenchacha: What Richard said.
In addition, there was some astonishment that people who hadn’t had health care for years would, upon getting it, actually use it!
Hoocoodanode?!?
wenchacha
@Richard Mayhew: Also @ WereBear: My husband is a GM/UAW retiree, so we have had pretty awesome coverage for many years, except for a few years with a very lean contract. Thank all Noodly Appendages.
My daughter who lives off-grid in the PNW qualifies for MedicAid, so that is also in the win column. My son is a grad student and recently married his Japanese-national wife. Their insurance story is a little more complex, and I wasn’t entirely clear on the best way to counsel him. Until December, he’s a student, so the university ins. is probably his best bet here in NYS.
Additionally, I just wondered how much the sky was truly falling for everybody else. I know that ACA hasn’t meant rock-bottom prices for everyone in every state. My hope is that eventually we do Medicare for all or something that maintains affordability for people who live in the margins.
For sure, it’s a good deal to have more people gain access to health care without resorting to the ER .
Kathleen
Thank you for this analysis, Richard. Your post yesterday was the first I’d heard about the merger. My son in law works for Humana so I hope he will survive the merger unscathed (he manages a sales organization). Also, I have my Medicare Advantage through Humana, and I get nervous at the prospect of any possible changes.