Health Insurers Respond To Reform By Snapping Up Less-Regulated Businesses

By Christopher Weaver
Kaiser Health News
March 19, 2011

Here’s one change few were talking about when the health overhaul law passed: It’s sent insurers – worried the law could stunt profits and growth – looking for new types of business.

Where are they investing? In less-regulated companies that could yield strong profits and make the main business – insurance – more lucrative. The purchases also could increase insurers’ control over more parts of the health system.

Insurers have moved into technology, health-care delivery, physician management, workplace wellness, financial services and overseas ventures in wide-ranging efforts to mitigate the new rules imposed by the law.

The current trend is largely driven by the health law, said Ana Gupte, an analyst with Sanford C. Bernstein & Co.

The newer ventures will not replace the core business of selling health coverage.

“They’re very synergistic with the health-insurance [product],” Gupte said, giving insurers more tools to control medical costs while potentially increasing earnings.

As more people receive insurance under the law, insurers would welcome 15 million new customers, according to the Congressional Budget Office. But the companies worry that the rules requiring most Americans to obtain coverage will prove too weak and allow many to go uncovered, said Robert Zirkelbach, a spokesman for America’s Health Insurance Plans.

That could leave insurers with slim gains, even as they face regulations that could limit profits, prohibit the practice of charging sick people higher rates, and funnel individuals and small businesses into government-created exchanges to buy policies.

“I’ve seen a big trend in getting further down the supply chain towards the point of care,” said Sarah James, an insurance industry analyst at Los Angeles-based Wedbush Securities. “Everybody’s looking to add on staff physicians and clinics” that can help control medical spending.

For instance, OptumHealth, a UnitedHealth subsidiary, has quietly taken control of Memorial Healthcare IPA, a Los Angeles company that manages more than 400 doctors, according to a document filed with the California Secretary of State’s office. OptumHealth declined to discuss details of the deal.

With its recent acquisitions, Humana is dipping its hand directly into patient care, gaining more control over doctors. That’s what makes acquisitions such as Concentra a “two-for-one deal,” Kusserow said. Concentra will continue to generate “great margins” for the company as a stand-alone business, he said, but also will give Humana a workforce of physician gatekeepers controlling access to costly services.

In a sign of Aetna’s interest in future acquisitions, the company hired Charles Saunders, a physician and recent veteran of the private equity firm Warburg Pincus, in January to oversee “strategic diversification.”

Some analysts do not see much of a future for companies that just stick with the business of selling insurance policies.

“If you’re a health plan, you either become a care delivery system or an information services company,” said David Brailer, a former George W. Bush administration health official who now leads an investment firm. “The traditional business is dead.”


By Don McCanne, MD

One of the claims made by those supporting the health care legislation that placed the private insurers in the drivers seat is that these private firms would be masters at innovation. Well, we are now seeing some of that innovation as they are making their early moves to take over the health care delivery system. It might not be good for our personal finances nor our health, but it is going to give a spectacular boost to Wall Street.

Re-posted with permission from