Jaan Sidorov, at the Disease Management Care Blog, has written a thought-provoking article about how changes in the health insurance industry could lead to health insurance carriers that become “too big to fail” and end up with AIG-style bailouts.
Jaan points out that state health insurance regulations have thus far kept health insurance carriers from getting too big; they tend to be somewhat fragmented by states or by regions, rather than being national entities. But his concern is that if a public plan were introduced to compete with private health insurance, there would likely be a rash of mergers in the private health insurance sector, leading to bigger, national companies that might indeed become “too big to fail.”
From the perspective of working in the health insurance industry, I can say that there are already plenty of national health insurance companies. Companies like Cigna, Aetna, United Healthcare, and Humana are all national carriers. This doesn’t mean that they offer policies in every state, but they have policies in many states – typically all of the states with regulations that fit their business model. The Blue Cross Blue Shield plans are often misunderstood in that people think of them as one national company when this is not the case. The “Blue” name is licensed by health insurance carriers in different states or regions, with the carriers being entirely separate companies from one state (or region) to the next. For example, here in Colorado, Anthem is the health insurance company that has licensed the Blue Cross Blue Shield name. So in Colorado, Anthem is synonymous with Blue Cross Blue Shield. There are several other states where Anthem BCBS offers health insurance, but in each state the policies are different to comply with the state’s specific regulations.
In addition to the smaller, regional health insurance companies, there are plenty of national carriers. A HumanaOne policy in Colorado will have different underwriting guidelines, different pricing, and different coverage than HumanaOne policies in other states. But all Humana policies are issued by the same company. So while the Blue Cross Blue Shield name is licensed by numerous health insurance carriers across the country, and while there are plenty of small state and regional health insurance companies in operation, many of the big name health insurance carriers are already national corporations.
I think that Jaan’s prediction of mergers following the introduction of a public health insurance program is probably very accurate. Since a public health insurance plan would have an economies of scale advantage over private carriers, it would make sense that the private carriers would want to emulate this model as much as possible. Mergers and buyouts would be the obvious way for big private health insurance companies to rapidly increase their membership numbers. Although such mergers would have to comply with anti-trust regulation, which might limit their scope.
I would argue that instead of being considered too big to fail, major health insurance carriers might be seen as too important to fail. A behemoth like AIG can be seen as too big to fail simply because of the scope of their reach – nearly all Americans would have been indirectly impacted by the failure of AIG. But while AIG’s collapse would have been primarily indirect (ie, it would likely have delivered a devastating blow to the financial industry as a whole), health insurance companies work directly with individual Americans. Even when a group policy is set up through a large employer with thousands of employees, the individual employees are the ones who carry the id cards with the insurance carrier’s logo on them.
As Jaan pointed out in his article, health insurance carrier profits aren’t as healthy as they once were. But overall the companies are still doing all right, despite the pounding that the economy has been taking for the last year. Now imagine for a minute that this were not the case. If a small health insurance company were to fail (leaving its insureds high and dry), it would certainly create regional ripples, but might go largely unnoticed on the national radar. But I honestly cannot imagine a large, national health insurance carrier going under. If any of them seemed to be heading in that direction, I have to assume that the government would intervene, either arranging a merger with another health insurance company or providing some type of bailout. With more than 47 million people currently uninsured, I doubt that the government would stand by and watch the number of uninsureds spike upwards because of the failure of a major health insurance carrier.
I think that at this point, the taxpayers are sick of the idea of bailouts, and corporations know that getting them in the future will be much more difficult. There will be more concessions involved, and companies will likely see bailouts as a last resort. I’m glad that health insurance carriers have weathered the economic storm better than some of the rest of the insurance industry, and I hope this continues to be the case.
I found Jaan’s article in the Health Wonk Review, hosted last week at Pizaaz. Not only are there plenty of great articles, but the introduction to the HWR deserves a read as well.