The Sky is Not Falling…

August 12, 2015

The sky is not falling… at least not any time soon. The announcement recently that Aetna would be acquiring Humana has put some industry analysts into a tailspin. This, they say, is just the beginning of what will ultimately lead to just a few behemoth companies left in the health insurance space. Other merger rumors are afloat. We’re doomed.

Companies merge in order to improve efficiencies and reduce redundancy. This is supposed to lead to cost savings across the board and therefore lower prices for consumers. Cynics are already claiming that consumers will suffer greatly with these mergers and that the only ones who will benefit will be investors and executives for each company.   

The same was said of the airline industry for many years. It hasn’t come true. Last year PWC updated a report on the airline industry called Aviation perspectives The impact of mega-mergers: a new foundation for the US airline industry. In it they conclude: “Contrary to popular opinion and widespread media coverage, average US domestic airfare increases since 2004 have been quite modest, rising at approximately two percent on an annual basis, and actually decreasing when adjusted for inflation.”

Part of the reason for this stability in airline pricing was the emergence of low cost airlines. Not only did they compete for major domestic routes, they filled in a few gaps in markets that the major carriers abandoned post-merger. These low cost carriers are only going to continue to grow both in size and in footprint. That’s great news for consumers. PWC went so far as to say that merger-driven consolidation “has had a significant and positive effect on the domestic airline industry.” That’s not just in pricing either.

Healthcare insurance companies will be under intense scrutiny over the next several years, not just from government regulators but from consumers themselves. The Affordable Care Act and the development of insurance exchanges has had one huge benefit – consumers are better educated on their options and are actively involved in their coverage decisions. Consumers are very likely to shop around and if they happen upon a smaller company offering better benefits and more choices? They’re going to take it.

There are no simple solutions to these mega mergers. There are, however, ways to improve our healthcare system that shouldn’t be abandoned just because of these mergers. Consumers must continue their demand for increased efficiencies, cost transparency and improved outcomes. These are the cornerstones of lower costs.

Originally posted by Paul Walther on July 21, 2015

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