Session 121 L, Consolidation of the Health Insurance Industry. Moderator/Presenter: Tracy Anne Margiott, FSA, MAAA

Transcription

1 Session 121 L, Consolidation of the Health Insurance Industry Moderator/Presenter: Tracy Anne Margiott, FSA, MAAA Presenter: David M. Liner, FSA, CERA, MAAA

2 Session 121: Consolidation of the health insurance industry David M. Liner, FSA, CERA, MAAA Tracy A. Margiott, FSA, MAAA 2016 SOA Health Meeting Philadelphia, PA June 17, 2016

3 Important Disclosures The material presented herein represents our current understanding the health insurance industry consolidation as of this presentation date. All information is subject to change. The opinions expressed herein are our own and are not necessarily those of Milliman. This is (hopefully) the most boring slide of this entire presentation. This material does not contain any accounting or legal advice. Milliman does not intend to create a legal duty to any user of this communication. 1

4 Agenda Headlines Headcount History Hartford Horizon 2

5 Headlines 3

6 Selected Headlines Mar 30, 2015 May 15, 2015 May 29, 2015 Jun 15, 2015 UnitedHealth to Buy Catamaran for $12.8 Billion in Cash Analyst Calls Aetna Acquisition of Humana or Cigna Imminent Reports: Humana Considering Sale, Cigna Interested Cigna Stock Jumps On News Of Anthem Takeover Bid 4

7 Selected Headlines Jun 21, 2015 Jul 1, 2015 Jul 2, 2015 Jul 3, 2015 Cigna Calls $47 Billion Anthem Bid Inadequate Ace Buying Chubb In Cash- And-Stock Deal Valued at $28.3 Billion Centene Plans To Buy Fellow Insurer Health Net For $6.3 Billion Aetna Plans To Buy Humana for $37 Billion 5

8 Selected Headlines Jul 7, 2015 Jul 9, 2015 Jul 23, 2015 Aug 31, 2015 Aetna-Humana Deal Pressures Cigna To Join Anthem CNBC: Cigna, Anthem Closer To A Deal Report: Anthem, Cigna Will Announce Deal Friday As Price Rises Aetna, Cigna Hire Lobbyists To Help Win Mergers 6

9 Selected Headlines Oct 19, 2015 Nov 12, 2015 Dec 3, 2015 Jan 11, 2016 Humana shareholders approve pending deal with Aetna AMA asks DOJ to block Aetna/Humana, Anthem/Cigna mergers Cigna shareholders approve merger with Anthem US State attorney generals joining probe of health insurer mergers 7

10 Selected Headlines Jan 27, 2016 May 6, 2016 May 20, 2016 Jun 2, 2016 Anthem maintains unwavering commitment to Cigna despite CMS sanctions DOJ expresses concern over $54B Anthem- Cigna merger Cigna warns Anthem deal may not close in 2016 Consumer group demands Insur. Comm. Wade recuse herself on Cigna merger 8

11 Cumulative Change in Stock Price 60% Cigna Anthem 50% June 15, 2015 Cigna Stock Jumps on News of Anthem Takeover Bid 40% 30% 20% 10% 0% -10% Source: Yahoo! Finance 9

12 Cumulative Change in Stock Price 60% Humana Aetna 50% May 29, 2015 Reports: Humana Considering Sale 40% 30% 20% 10% 0% -10% Source: Yahoo! Finance 10

13 Cumulative Change in Stock Price 60% Health Net Centene 50% 40% July 2, 2015 Centene Plans To Buy Fellow Insurer Health Net For $6.3 Billion 30% 20% 10% 0% -10% Source: Yahoo! Finance 11

14 Cumulative Change in Stock Price 60% Catamaran United 50% 40% 30% March 30, 2015 UnitedHealth to Buy Catamaran for $12.8 Billion in Cash July 23 OptumRx, Catamaran Complete Combination 20% 10% 0% -10% Source: Yahoo! Finance 12

15 Cumulative 2015 Change in Stock Price 30% Catamaran Cigna Humana Health Net 25% 20% 15% 10% 5% 0% Days after M&A News is Public Source: Yahoo! Finance 13

16 Headcount 14

17 2015 U.S. Medical Membership, Pre-Merger (000 s) 50,000 40,000 30,000 20,000 10,000 0 United Anthem Aetna Cigna Humana ASO Commercial Medicare Medicaid Other Public Source: Annual Reports 15

18 2015 U.S. Medical Membership, Post-Merger (000 s) 50,000 40,000 30,000 20,000 10,000 0 United Anthem Aetna ASO Commercial Medicare Medicaid Other Public Source: Annual Reports 16

19 2015 Medicare Advantage and Part D Membership, Pre-Merger (000 s) 14,000 12,000 10,000 PDP MA-PD MA 8,000 6,000 4,000 2,000 0 Source: CMS Enrollment Report 17

20 2015 Medicare Advantage and Part D Membership, Post-Merger (000 s) 14,000 12,000 10,000 PDP MA-PD MA 8,000 6,000 4,000 2,000 0 Source: CMS Enrollment Report 18

21 Top Dental Coverage Delta Dental MetLife Aetna Cigna United Concordia Guardian Anthem Ameritas Principal Assurant Source: Business Insurance Participants (millions) Source: Business Insurance 19

22 Top Vision Coverage EyeMed VSP Davis United Cigna Anthem Advantica Guardian Ameritas Principal Source: Business Insurance Participants (millions) Source: Business Insurance 20

23 History 21

24 Aggregate Deal Value ($billion) Headlines Number of Deals Health Insurer M&A History Deal Value Economic Downturn Deal Count Economic Downturn Source: SNL Financial 22

25 Notable M&A Transactions Cigna to buy Healthsource for $1.4 billion Cigna to buy Great-West for $1.5 billion Cigna to buy HealthSpring for $3.8 billion Source: SNL Financial 23

26 Notable M&A Transactions Aetna to buy NYLCare for $1.4 billion Coventry to buy First Health for $1.8 billion Aetna to buy Coventry for $5.7 billion Aetna to buy Humana for $35.5 billion Other acquisitions include local and international health plans Source: SNL Financial 24

27 Notable M&A Transactions Anthem to buy WellPoint for $17.6 billion WellPoint to buy WellChoice for $6.6 billion WellPoint to buy Amerigroup for $4.9 billion Anthem to buy Cigna for $48.1 billion 3 acquisitions announced but terminated 6 acquisitions valued over $1 billion Source: SNL Financial 25

28 Notable M&A Transactions United to buy Mid Atlantic for $3.3 billion United to buy Oxford for $5 billion United to buy PacifiCare for $8 billion United to buy Sierra for $2.5 billion 5 acquisitions valued over $1 billion Other acquisitions include dental plans and international plans Acquired Symphonix Health Holdings, Jan 2016 Source: SNL Financial 26

29 Terminated M&A Deals (Selected) UnitedHealth to acquire Humana for $5.7 billion Highmark to acquire Independence Blue Cross Harvard Pilgrim to acquire Tufts HMO Company May 27, 1998 July 3, 2015 Annual Return Humana Deal Value $5.7 billion $35.5 billion 11% United Stock Price (1) $7.33 $ % (1) Closing price adjusted for dividends and splits Source: SNL Financial, Yahoo! Finance 27

30 Largest Insurance M&A Transactions Source: SNL Financial 28 Rank Acquirer Target Year Deal Value 1 AIG American General 2001 $23.4 billion 2 Berkshire Hathaway General Re 1998 $22.3 billion 3 Anthem WellPoint 2003 $17.6 billion 4 AIG SunAmerica 1998 $16.8 billion 5 St. Paul Travelers P&C 2003 $16.1 billion 6 American Life MetLife 2010 $15.5 billion 7 Travelers L&A Citigroup 2005 $11.5 billion 8 Transamerica AEGON 1999 $10.7 billion 9 John Hancock Manulife 2003 $10.4 billion 10 PacifiCare United 2005 $8.0 billion If approved, Anthem/Cigna, Aetna/Humana, and ACE/Chubb would be the three largest insurance mergers

31 Notable M&A Transactions CVS acquires Universal American for $1.25 billion Highmark acquires West Penn Allegheny Health System Highmark acquires Jefferson Regional Medical Center Vertical Integration Source: SNL Financial 29

32 Pharmacy Supply Chain Product Payment Rebate Manufacturer Top 3 US Pharmacies: - CVS Health - Walgreens Boots Alliance - Express Scripts Top 3 US Manufacturers: - Pfizer - Merck - Gilead Sciences Benefit Manager Pharmacy Retail / Mail order Wholesaler / Distributor Top 3 US PBM: - Express Scripts - CVS Health - OptumRx/Catamaran Top 3 US Wholesalers: - AmerisourceBergen - Cardinal Health - McKesson Plan Consumer Multiple Sources; Top Companies based on Revenue 30

33 Pharmacy Supply Chain Manufacturer Benefit Manager Pharmacy Retail / Mail order Wholesaler / Distributor Plan Consumer Product Payment Rebate Multiple Sources; Top Companies based on Revenue 31

34 Pharmacy Supply Chain Manufacturer Benefit Manager Pharmacy Retail / Mail order Wholesaler / Distributor Plan Consumer Product Payment Rebate Multiple Sources; Top Companies based on Revenue 32

35 Hartford 33

36 A Few More Headlines June 21 July 4 September 25 Health Insurance Consolidation Raises Spector of Layoffs Hope, Worry Over Aetna s Hometown Workforce Anthem Merger Filing: No Plans To Cut Cigna Workers In Any Material Respect Source: Hartford Courant 34

37 Source: Hartford Courant 35

38 Cost of Living: Comparable Salary by MSA Des Moines, IA $74,796 Indianapolis, IN $76,101 Hartford, CT $100,000 Louisville, KY $74,796 Source: CNN 36

39 The work of science is to substitute facts for appearances and demonstrations for impressions - John Ruskin Source: Framing Success, Wikipedia 37

40 Insurance Jobs Headlines Initial Hypothesis Hartford Des Moines Year 38

41 Insurance Carrier and Related Jobs As a Percent of Total Jobs By MSA 12% 11% Hartford 10% Des Moines 9% 8% 7% 6% Source: U.S. Bureau of Labor Statistics

42 Insurance Carrier and Related Jobs As a Percent of Total Jobs By State 5% Connecticut Nebraska Iowa Kansas 4% 3% 2% 1% All Other States 0% Source: U.S. Bureau of Labor Statistics

43 Insurance Carrier and Related Jobs As a Percent of Total Jobs 12% Hartford 10% Nationwide 8% 6% 4% 2% 0% Source: U.S. Bureau of Labor Statistics

44 Finance & Financial Activity Jobs As a Percent of Total Jobs 13% 12% 11% New York City Nationwide 10% 9% 8% 7% 6% 5% Source: U.S. Bureau of Labor Statistics

45 Legal Services Jobs As a Percent of Total Jobs 2.5% 2.0% Washington DC Nationwide 1.5% 1.0% 0.5% Source: U.S. Bureau of Labor Statistics

46 Gambling Industries Jobs As a Percent of Total Jobs 2.0% Las Vegas 1.5% Nationwide 1.0% 0.5% 0.0% Source: U.S. Bureau of Labor Statistics

47 4% Motor Vehicle Manufacturing Jobs As a Percent of Total Jobs Detroit Nationwide 3% 2% 1% Auto Bailout 0% Source: U.S. Bureau of Labor Statistics

48 Arts, Entertainment, and Recreation Jobs As a Percent of Total Jobs 2.4% Los Angeles 2.2% Nationwide 2.0% 1.8% 1.6% 1.4% 1.2% 1.0% Source: U.S. Bureau of Labor Statistics

49 Industry-specific Jobs As a Percent of Total Nationwide Jobs 16% 14% 12% 10% 8% 6% 4% 2% 0% Source: U.S. Bureau of Labor Statistics 47 Las Vegas NYC Detroit LA DC Hartford

50 100% US Population Using Internet 80% 60% 40% 20% 0% Source: The World Bank, Development Indicators 48

51 49

52 Horizon 50

53 Number of Members (millions) Uninsured 29 Large Group 52 Medicare 48 Unins. 29 Small Group 19 Dual Eligible 7 Public 106 U.S. Population 320 Million Private 185 Individual 22 Medicaid 45 Other Public 6 Self-Insured 92 Source: Kaiser Family Foundation 51

54 Number of Members (millions) Uninsured 29 Dual Eligible 7 Medicare 48 Public 106 Unins. 29 U.S. Population 320 Million Private 185 Commercial 93 Highlighted area represents market share of top 3 insurers post-mergers Medicaid 45 Other Public 6 Self-Insured 92 Source: Kaiser Family Foundation 52

55 1965 U.S. Population Pyramid Medicare Program created in Source: U.S. Census Bureau 2014 National Population Projections 53

56 2015 U.S. Population Pyramid Source: U.S. Census Bureau 2014 National Population Projections 54

57 2030 U.S. Population Pyramid Source: U.S. Census Bureau 2014 National Population Projections 55

58 2045 U.S. Population Pyramid Source: U.S. Census Bureau 2014 National Population Projections 56

59 2060 U.S. Population Pyramid Medicare 65+ Working Source: U.S. Census Bureau 2014 National Population Projections 57

60 Ratio of Medicare Population to Working Population by Year 45% 40% 35% 30% 24% 42% 25% 20% Source: U.S. Census Bureau 2014 National Population Projections 58

61 Impact of Market Concentration Source: Wall Street Journal 59

62 Herfindahl-Hirscman Index Headlines Impact of Market Concentration Case Study: NY Area ACA Marketplace Premiums ( ) 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 Hospital Med Group Health Plan New York - -6% -4% -2% 1% 3% 5% 7% Change in Premiums Source: Health Affairs, May

63 Herfindahl-Hirscman Index Headlines Impact of Market Concentration Case Study: CA Counties ACA Marketplace Premiums ( ) 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 Hospital Med Group Health Plan California - 0% 1% 2% 3% 4% 5% 6% Change in Premium Source: Health Affairs, May

64 Title and Content 1 Hartford HealthCare now includes: Hospitals Behavioral health facilities Physician practices Rehabilitation facilities Outpatient facilities Skilled nursing facilities 62

65 Number of Accountable Care Organizations million ACO lives 23.5 million ACO lives 72 million ACO lives predicted by Source: Health Affairs 63

66 Connect Dave Liner Tracy Margiott