The healthcare industry, the retail pharmacy industry and in fact lots of industries, were buzzing with the news that mega pharmacy chain CVS was pursuing a merger with Aetna, one of America’s oldest insurers. While the trend toward consolidation in healthcare is not new, a deal this size would be unprecedented in multiple ways. And the combined entity would have far-reaching implications for consumers, for employers and even the US government.
The negotiations are highly confidential, so any details about the deal, or the motivations behind it, are purely speculative. But Fred Goldstein, founder of Accountable Health Inc., offers a unique viewpoint on the merger. Goldstein points to a flaw in the Affordable Care Act known as the Medical Loss Ratio requirement.
“This requirement was put in place as a way to ensure that health plans did not make money by underutilizing medical care. But it had the unintended consequence of insuring that costs never went down and here’s why.
Let’s assume that a hypothetical health plan offers a product at a $5,000 premium. Based on this premium, they must spend 80% or $4,000 on Medical Care and the remaining $1,000 goes to cover administrative expenses and profit. At the same time, it’s fairly common knowledge that 30% and possibly more of healthcare costs are associated with waste, fraud and abuse.”
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