Aetna Buys Humana for $37 Billion
The history of managed care really starts when the troops came back from World War II. Up to this point virtually all medical care was paid for by the patient.In 1948, there was virtually no insurance for physician care and very limited insurance available for hospital care. There was no Medicare or Medicaid, so if you got sick and you could not pay for medical care, your family's next call was for the undertaker. The first real real managed care plans (i am using health care insurance company and managed care interchangeably) were provided by the Blue Cross plans for hospital care and Blue Shield plans for physician care.
Medicare and Medicaid were formed on July 30th of 1965. The federal government needed someone to administer claims and payments for these programs and they signed contracts with the Blue Cross and Blue Shield Associations. The "Blues," as they came to be called, were a natural fit. As non profit companies, they were seen as an extension of federal government.
Medicare and Medicaid started out as a much smaller part of a hospital's or physician's business than they are today. This is in part because Medicare coverage starts at 65 years of age and the average life expectancy was around 66 when Medicare and Medicaid were created (wow times have changed). It was also much more difficult to qualify for Medicaid. Each state had to agree to create a Medicaid plan and many did not, Arizona was the last state to enter Medicaid in 1982. Also, it was much harder to qualify for Medicaid as the initial the view of who should be covered by Medicaid was much narrower than it is today.
In 1994, the Blues decide to allow for profit companies to license the Blue Cross and Blue Shield name. The market power and market share for the Blues and companies licensing the name have continued to shrink over the years.
In the early 1980's, when I started in healthcare, hospitals and physicians had four basic buckets in their patient mix. They had Medicare, Medicaid, Blue Cross and private pay. Private pay included most of the other health insurance payers as "indemnity" providers that paid 80 percent of charges, leaving the patient to pay the remaining 20 percent.
Now enters Humana. Humana was at it's inception in 1960 a healthcare chain of hospitals and nursing homes. They owned and operated one of the largest chains of hospitals and nursing homes in the country. In 1984 they started selling health insurance. In 1993 they sold 73 of their hospitals to the Hospital Corporation of America. Humana wanted to focus on the insurance business.
In 2003 the Medicare Modernization Act overhauled a failing program to create a behemoth and Humana's largest group of enrolled beneficiaries now. In 1997 Medicare had created the Medicare + Choice program as a voluntary replacement to standard Medicare. It failed, mainly because of low rates paid by Medicare to managed care companies. In 2003 this program was renamed Medicare Advantage and it took off. Close to 30 percent of all Medicare members in the country are now enrolled in in Medicare Advantage.
Aetna is an old company that got its start as Aetna Fire Insurance. They have been involved in healthcare for a long time. They were functioning as a Medicare fiscal intermediary when I got into healthcare in 1981 for a small number of providers. In the late 1990s, Aetna bought heavily in the healthcare market, acquiring US Healthcare and number of smaller plans. In an effort to increase profits, they dramatically raised rates on members and ended up losing over 8 million covered lives.
Aetna still wanted to get larger traction in the healthcare market and appears to be doing it the way they always have, they bought big. They are hoping that economies of scale will work in their favor. They certainly hope history does not repeat itself.
If you ask most hospitals or physician groups what their current mix of patients looks like, it will most likely be around 30 percent standard Medicare, 15 percent Medicaid, 20 percent Medicare Advantage 25 percent other contracted managed care plans and 10 percent self pay. Of the Medicare Advantage, the lion share is usually split between Humana and United Healthcare. With the survival of Obamacare, it appears that Medicaid will pick up some of the self pay, but also pull some from the other managed care category. The winners in the managed care arena will be able to profitably service Medicare Advantage, profitably offer insurance in the Obamacare arena and hold onto a portion of the potentially shrinking pie of people insured outside of Obamacare, Medicare and Medicaid.
This is the first, but definitely not the last, of these mergers and acquisitions. I am reminded of the story of Alexander the Great on his deathbed. The story went that when asked who would lead after him, he simply said the strongest.
Timothy Powell, CPA
Post A Comment:
0 comments: