It was big news when Warren Buffett, Jamie Dimon, and Jeff Bezos announced they would create their own insurance company to serve their companies Berkshire Hathaway, JP Morgan Chase, and Amazon. But what followed is equally as intriguing – a trend for businesses to purchase already existing insurance companies.
Retail Health Insurance?
You may recall that back in 2016, insurers Humana and Aetna proposed a merger, but the Federal government denied them permission, because it would run afoul of free market competition. Well, today both Humana and Aetna are still available for “sale,” and the potential purchasers are now large, non-insurer corporations. Last December, retailer CVS announced the intention to purchase Aetna, and just a few days ago Wal-Mart was reported to be in preliminary negotiations to purchase Humana.
What does this mean for the traditional health insurance market as we know it? Of course, it’s difficult to say. First, running an insurance company is nothing like running a regular business. Insurance is a complex product full of unique regulatory issues and outsized long-term risk. Wal-Mart and CVS executives will be wise to leave the running of the insurance business to the experts already in place.
Second, it is unclear why Wal-Mart and CVS are interested in owning an insurance company in the first place. The most likely answer, as reported by media, is that they are concerned about Amazon’s intention to sell prescription drugs, and they want to remain competitive. However, Amazon has not cleared the regulatory hurdles to gain this ability, and CVS and Wal-Mart already have the ability to sell prescription drugs. Obtaining an insurance company to keep up with Amazon seems like “killing a mosquito with a cannonball.” It may bring more problems than solutions.
Will Consumers Benefit?
The biggest question for consumers is, “How does this affect me?” At first blush, I am inclined to conclude these purchases would be a good thing for consumers. The health insurance industry is long overdue for a shake-up, and fresh ideas from retailers like Wal-Mart and CVS could lead to lower prices and better health care. However, the reality remains that 1) Aetna and Humana are a small part of the national health insurance market (about 9% total), and 2) Wal-Mart and CVS are shareholder-driven corporations just like Aetna and Humana. They will still be driven to cut costs and make profits for shareholders – at the expense of your health.