Insurers reaped big financial gains from mergers in 2019
THE LARGEST PUBLICLY TRADED health insurers grew profits by a combined 66% in 2019, driven by the massive mergers and acquisitions several of them completed the previous year.
Those deals boosted the seven companies’ collective net income to $35.6 billion, according to Modern Healthcare’s analysis of company earnings reports. Combined revenue increased 31% over 2018 to $913 billion.
The combined growth of the companies’ top and bottom lines was propelled by deals with businesses other than insurance, including pharmacies and pharmacy benefit managers. These deals, which have escalated in recent years as insurers have sought to exert more control over healthcare spending, have made it harder to categorize the companies as insurers. Their operations are becoming much more diversified.
“There are so many places where costs come from—the PBM, the hospital, the doctor’s office—and everything is separate from each other,” said Deep Banerjee, an insurance industry analyst with S&P Global Ratings. “The vertical integration is an attempt to control more pieces of the cost while also growing scale.”
Even insurers are reluctant to label themselves as such as they branch out into new businesses. Cigna Corp. CEO David Cordani has said he prefers the organization to be known as a “health service company.”
Cigna acquired pharmacy benefit manager Express Scripts at the end of 2018, which helped drive a 216% surge in revenue last year.
In addition to M&A, insurers’ earnings were helped to a lesser extent by membership growth in government-sponsored health plans, including Medicare Advantage and managed Medicaid, Banerjee said. Medicare Advantage is growing rapidly as a generation of Americans turns age 65.
The analysis of financial results included Anthem, Centene Corp., Cigna, CVS Health, Humana, Molina Healthcare and UnitedHealth Group. It excluded insurer WellCare Health Plans, which was acquired by Centene in the first quarter of 2020 and did not report its full-year 2019 financial results.
Cigna and CVS reported the largest increases in net income, driven in both cases by acquisitions. In the wake of its Express Scripts deal, Cigna grew profit by 93.5% to $5.1 billion in 2019. Pharmacy giant CVS’ takeover of health insurer Aetna at the end of 2018 sent its 2019 net income soaring to $6.6 billion compared with a loss of $596 million the year before.
Anthem’s net income for the year grew 28.2% to $4.8 billion thanks to the launch of its internal PBM IngenioRx, which it created in collaboration with CVS. Enrollment gains in Medicare Advantage and Medicaid also helped buoy results, the company said.
Humana and Centene experienced significant earnings and revenue increases thanks to membership growth in government-backed health plans. Humana CEO Bruce Broussard told analysts that the company’s individual Medicare Advantage membership in 2019 experienced “the highest growth we’ve seen in a decade.” Humana has acquired senior-focused primary-care centers and home health and hospice operators to support its new members. Net income rose 60.8% in 2019 to $2.7 billion.
Centene’s bottom line was bolstered by growth in its health insurance exchange plans and new state Medicaid contracts. It reported net income of $1.3 billion for the year, an increase of 46.4%. Centene’s acquisition of rival WellCare, which closed Jan. 23 and was not included in 2019 results, ensures that its bottom line will continue to swell.
UnitedHealth Group, one of the nation’s largest healthcare companies, reported annual net income of $14.2 billion, an increase of 15%. The company’s Medicare Advantage, care delivery and PBM services drove the increase. ●