Eldon Van Der Wege, MBA and
Thomas Billroth Gottlieb, MD
In this study, we propose the US health insurance system should be consolidated using a mergers and acquisitions strategy to reduce the current inequality and administrative inefficiency in healthcare. We believe that our study has significant policy implications for healthcare reform and will result in higher quality services at a reduced cost and healthier communities.
U. S. Healthcare Financing Reform:
The Consolidation of the Health Insurance Industry
Eldon Van Der Wege, MBA
Thomas Billroth Gottlieb, MD
Equitable distribution of healthcare services and administrative efficiency are lacking in the
current American healthcare system. A high concentration and a lack of competition in the
health insurance industry suggests the feasibility of a single government health insurer, which
could be achieved using a mergers and acquisition strategy, thus removing the wasteful
complexity in healthcare financing. In this study, the enterprise value, market share, and
financial characteristics of commercial health insurers are used to estimate that an investment of
$714 billion would be needed to consolidate the health insurance industry. We estimate that,
with an annual administrative cost savings of $405B, there would be a payback period of two
years. Merging state medical assistance programs and acquiring the private health insurers to
reform the Medicare program would be the most effective method of achieving affordability,
equitable access, and cost savings in healthcare.
Keywords: healthcare financing, health insurance, Medicare, Medicaid, mergers and acquisitions
Mergers and acquisitions (M&A) are common business practices used to acquire customers,
achieve economies of scale, and reduce expenses. The Federal Government, the largest health
insurer in the country and the largest customer of private health insurance, has a financial
incentive to use an M&A strategy to merge state medical assistance programs and acquire private
health insurers to reform the Medicare program.
The purpose of this study is to analyze the synergy that could be achieved by federalizing the
cost of state medical assistance programs and consolidating the health insurance industry into a
single government health insurer. Economists have extensively studied the savings in
administrative costs that can be achieved by replacing the multi-insurer system with a single
government health insurer. 1 In the present study, the financial characteristics and market share of private health insurers are examined to determine the feasibility and expected cost to the Federal Government of acquiring the entire private health insurance industry. The payback period method, which measures the number of years it takes to return the initial investment, is used to value the M&A strategy.
The estimated payback period shows that the Federal Government has the opportunity to invest and consolidate the industry, and thus reduce the wasteful complexity of health insurance. The Medicare program that we propose would simplify billing and health insurance-related (BIR) activities, resulting in a more efficient health care financing system. 2 Using income-related actuarial premiums and family size in reforming the Medicare program would make health insurance affordable while adding social value.