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January 24, 2017

Q&A: What the Aetna–Humana ruling means for health plans

Daily Briefing

On Monday, a federal judge blocked Aetna's proposed merger with Humana. The Daily Briefing asked Russell Davis, executive director of Advisory Board's Health Plan Advisory Council, what this means for health plans.

Question: What is the big takeaway from Monday's ruling?

Russell Davis: While the ruling may not be the final say on this case (Aetna may appeal), it suggests the government will attempt to prohibit large concentrations of market share, even in cases where there is a broader strategic rationale for a deal. That means health plans will need to move beyond traditional zero-sum relationships and develop new ways of creating value for consumers. The ruling also is a sign that health plans can't solely rely on economies of scale to take significant costs out of the system.

Q: So, what can health plans do?

Davis: Leading plans are navigating two paths, and both are difficult. The first involves developing select relationships with high-performing providers to drive down cost and grow market share. By aligning incentives and sharing risk, plans and providers create a more valuable offering to consumers and profit in the process.

The second path involves helping "amateur" health care consumers select, purchase, and use their health plans more effectively. For the average American, health insurance is the most expensive and least understood product they purchase every year. In response, leading health plans are investing heavily here on the belief that educated consumers will make better care decisions.

Q: This doesn't look like what we typically see in the market today. How many health plans are pursuing these paths right now?

Davis: It's early days for sure. We are seeing a number of plans structuring successful risk-sharing arrangements with providers. But, understandably, most of today's arrangements are modest. Keep in mind, this represents a completely different way of doing business for plans and providers, and these organizations need to develop new muscles to do it properly. Based on the number of questions we get from folks who what to take the first steps, we expect to see a big increase in risk-sharing arrangements in the months and years ahead.

On the consumer front, many plans have made major investments in member onboarding and product simplification. We've seen a huge uptick in the creation of customer journey maps, which serve as the basis for a more intuitive experience. And a few plans are investing in the sort of customer analytics that fuel retail loyalty programs in other industries. There is broad recognition that the industry has to do more to make insurance easier for members.

Q: Does the ruling spell the end of health plan M&A?

Davis: No, but it may change the rationale for deals. Assuming the ruling stands, and especially if the pending Anthem-Cigna decision follows a similar path, it's a sign that large health plans cannot count on mega-mergers to reduce costs. They will likely look for more targeted deals that are complementary from a product or geographic perspective, as opposed to buying more of what they already do, where they already do it. It could create the impetus for plans to diversify into new business lines.

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Q: Could the Trump administration reverse the Aetna-Humana ruling? And what does this mean for the Anthem-Cigna deal?

Davis: We have much more confidence in what health plans should do than in what the Trump administration might do or how the Anthem-Cigna case may shake out. Under any scenario, health plans need to reduce costs and develop new and innovative ways to serve their members. Leading organizations are pursuing the paths of building innovative relationships with select providers and helping their members understand and use their insurance more effectively. In the long run, that's what will separate winners from losers and that’s where we believe they should focus their energy.

Q: Does the ruling take the heat off of health plans in terms of reducing costs, especially since the new administration wants to repeal the Affordable Care Act (ACA)?

Davis: Not at all. Consumers still want easy access to high quality, affordable care. Health plans are responsible for assembling and managing the networks that make that possible. This is true under the ACA, and it will continue be true as the ACA is modified or repealed or replaced. The heat is still on—health plans just can't rely on large mergers to cool things down.

Q: Where can health plans go to learn more about reducing costs and developing new ways to serve their members?

Davis: Health Plan Advisory Council members can download the presentations from HPAC's national meeting on "The Health Plan Growth Ambition," "The New Value-Based Currency," and "The Imperfect Consumer."


Advisory Board members and nonmembers can also download our infographic, "Four principles to establish your Health Plan Diplomacy."


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