Over the past 18 months, the managed care industry has seen significant consolidation by UnitedHealth Group, WellPoint, and Aetna — three of the largest health plans in the industry. Because of their sheer size, they have benefited from great market leverage, economies of scale, and solid internal cash flow. As a result, they are in a better position to increase profits than their smaller counterparts, primarily by increasing membership and by mergers and acquisitions.
According to a recent industry overview issued by Merrill Lynch, big insurers are set to improve profitability while expanding market share in 2005–2006. Merrill Lynch expects large companies to outgrow their smaller brethren because they will not have to lower premiums to gain membership. These large companies should maintain a better level of price discipline — charging an appropriate price to cover operating costs.
Large players in this sector have also gained market share from companies that have not been doing as good a job balancing costs and revenues, as well as from regional health plans that are not publicly traded.