Because the Patient Protection and Affordable Care Act encourages insurers to scale up by requiring 80 to 85 percent of the premiums they collect to be spent on patient care, profit margins are limited. The fastest way for some insurers to increase profits is to purchase another insurer’s customers. In addition, having a larger share of the market helps insurers negotiate lower rates with physician groups and hospital chains.
But the increased consolidation presents a number of risks as well. If consolidation among payers continues at this rapid rate, the Medicare Advantage and Medicaid HMO markets in some states could be controlled by one insurer, which would raise prices for consumers and possibly drive out physicians. Consolidation could also harm innovation, eliminating the underdogs from assisting in changing the industry.
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