US health insurance industry consolidation forges ahead

Consolidation of the US health insurance industry has taken another
step forward with the announcement that US insurer Cigna is to
acquire Great-West Life & Annuity’s health care division in a
$1.5 billion cash deal. Based in Denver, Colorado, Great-West
Healthcare (GWH) provides health insurance to 1.5 million members
and has a national health care network consisting of 4,275
hospitals and approximately 575,000 physicians and ancillary
service providers. Great-West Life & Annuity is a unit of
Canadian financial services group, PowerCorp.

“Great-West Healthcare will be a significant addition to Cigna,”
said Cigna’s chairman and CEO, H Edward Hanway. He added that the
acquisition would broaden Cigna’s distribution reach and provider
network, particularly in the western regions of the US, and bolster
its product offerings in the small business segment.

Cigna’s primary business units are Cigna Healthcare, Cigna Group
Life & Disability and Cigna International. Health care
insurance is the most significant of Cigna’s operations and in the
2006 financial year generated premium income of $9.83 billion and
contributed $653 million to total net income of $1.16 billion. At
the end of 2006, Cigna’s US health insurance plans had 9.4 million
members and another 33 million members of other medical-related
plans in the US and other countries. The acquisition of GWH comes
at a time of growing opposition to health care industry
consolidation. Among its strongest opponents is the American
Association of Family Physicians (AAFP), a body representing 94,000
doctors.

Addressing the Senate House Committee on Small Business in October,
AAFP president Jim King said: “In the US, only two insurance
companies cover one-third of all insured Americans. This type of
market dominance eliminates competition, giving insurance companies
the power to carry out near-monopolistic insurer behaviours.”

Backing King, William Plested, a past AAFP president, added:
“During the past decade, there have been more than 400 mergers in
the health insurance industry, leading to higher premiums and
decreased patient access to care.”