The planned mergers of several of America's largest health insurers Aetna combining with Humana, and Anthem with Cigna is almost certain to be good for the insurers, reducing overhead and improving their bargaining position as they attempt to negotiate better rates with providers.
But what's in it for you and me? The answer may surprise you: In all likelihood, the mergers will lead to better medical care at lower costs.
There is little doubt that consolidation will reduce the insurers' administrative overhead. Aetna estimates, for example, that its merger with Humana could produce approximately $1.25 billion in annual cost savings by 2018.
To reduce costs further, however, the insurers will have to look elsewhere. The best possible approach they could take is aiming to improve patient health. This has not always been the focus of health insurers, but it is likely to be the big story that comes out of consolidation.
Most Americans get medical care today from an often-disorganized assortment of primary care doctors, medical specialists, therapists, diagnostic facilities, hospitals, pharmacies and so on. Costs and outcomes vary widely among providers in the same general locality and are usually unknown until after the fact. The right hand often doesn't know what the left hand is doing, and incentives payments to providers based on quantity rather than quality, for example are out of whack. The system is less than ideal.
Insurers since they are the primary bill payers, along with government have been looking for a better way. The model that's emerging as the most effective mirrors the Medicare Advantage program, which is an alternative to traditional Medicare sponsored by the U.S. government. It is offered by private insurers and accountable care organizations, or ACOs, and is chosen completely and independently by the senior citizen.
Currently, some 16.8 million Americans are enrolled in Medicare Advantage plans, mostly (about 64 percent) in health maintenance organizations, or HMOs, according to the Henry J. Kaiser Family Foundation, a nonprofit that focuses on health care issues.
What makes these plans different and effective is their organization and focus: networks of "preferred providers" with a strong emphasis on primary care, financial incentives aligned with clinical best practices, and active "care management" programs focused on keeping patients healthy, which reduces the need for hospital admissions.
Research shows that this type of active care management is not only less costly than traditional fee-for-service medicine, but it also improves patient health.
The Boston Consulting Group confirmed this in 2013 when my colleague Daniel Gorlin and I did a detailed comparison of claims data for some 3 million Medicare patients.
What we found was that patients in the more managed programs, such as Medicare Advantage HMOs, had lower mortality rates and enjoyed better health and fewer complications than traditional fee-for-service patients.
Single-year mortality rates, for example, fell from 6.8 percent in the fee-for-service sample to 1.8 percent in the managed care models. These death rates declined quickly, within the first year of enrollment.
The lowest mortality rates and the best performance overall were seen in "capitated" HMO plans, where the HMO receives a flat fee for each patient and is then responsible for all of the patient's medical needs.
Our research also showed that the Medicare Advantage patients averaged shorter hospital stays and fewer readmissions. Compared to the fee-for-service sample, the capitated HMO sample had hospital stays that were on average 19 percent shorter.
The big insurers have continued to learn from their experience with Medicare Advantage.
One company's chronic care program, for example, developed in 2012, reduced hospital admissions among the 235,000 participants by some 45 percent.
The big merger story isn't so much about who buys whom. It's what the newly consolidated companies do with their newfound scale, market position and, above all, expertise.
In recent years the large health insurers have learned a lot about patient health, managing care and the role incentives play. The mergers should enhance their capabilities, leading to additional reforms and better health care for all of us.
ABOUT THE WRITER
Jon Kaplan is a Chicago-based senior partner at the Boston Consulting Group and leader of its health care payers and services team in the Americas. Readers may write him at BCG, 300 N. LaSalle, Chicago, IL 60654.
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(c)2015 Jon Kaplan
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