Mergers Pave Way for Good Opportunity to Enter Medicare Advantage Market

While the largest insurance companies await their fate at the hands of federal regulators, other plans and investors should pay close attention to the opportunity to acquire divested plans from the two deals.

With the shareholders overwhelmingly approving the merger between Aetna and Humana, all eyes are on what the Department of Justice (DOJ) and the Federal Trade Commission (FTC) will make of the proposal for the two largest health insurers to consolidate.  Anthem and CIGNA also await federal scrutiny.  The mild grilling of the healthcare executives on the hill has led many to believe these deals will receive federal approval. And while hospital associations warn of lack of competition in programs such as Medicare Advantage (MA), it is widely recognized these companies will face significant divestitures in markets which will become highly concentrated due to the mergers. Aetna already announced it took a conservative look at the amount of business it would need to divest in order to make this deal go through.

Humana and Aetna would need to divest their plans anywhere the two plans have too much of the market combined – financial analysts estimate this to be any county where the market share is over 40% to 50%.  One example of such state is Kansas, where Humana and Aetna combined hold 90% of the MA business. Other major states include West Virginia, Iowa and Missouri, and Ohio, where the two insurers would control an overwhelming amount of MA business. While, according to the Kaiser Family Foundation, Aetna currently only controls 7% of the MA business nationwide, Humana has the largest enrollment in 11 states.

These divestures present a great opportunity for investors and existing plans to enter or increase their presence in the MA market.  MA enrollment currently sees no end to the growth spurt it is experiencing. In fact, the National Committee for Quality Assurance (NCQA) recently praised MA plans for their success in increasing quality for seniors, for the first time ever outpacing commercial plans on some quality measures. These existing MA plans are also attractive because of their existing infrastructure already in place, as the investment in creating a new MA plan is very burdensome and can take a long time to reap the benefits.

With both deals expected to close mid to late 2016, investors should really consider looking at states and counties where divestitures will be particularly significant and entering the ever-growing MA market.

Interested in entering or increasing your presence in the MA market?

Gorman Health Group’s integrated team of experts can provide strategic analysis in evaluating market conditions across the country to identify MA opportunities and high potential target areas for expansion. Contact us today >>

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This blog was originally posted on blog.gormanhealthgroup.com.

John Gorman: Under John’s leadership, Gorman Health Group has become the leading professional services and solutions firm for government-sponsored health care, providing thought leadership and expert strategic, operational, and technology-based solutions. Read more.