Aetna's Acquisition of Prudential: Impact on Chicago Area and Healthcare Market

Strategic Insights -

Aetna Inc. has become the largest health maintenance organization in the country with its acquisition of Prudential HealthCare, a move that may have significant implications for the healthcare market. Despite concerns from industry experts, the deal appears to have little impact on the Chicago area, where Prudential is a partner in the Rush Prudential Health Plans, the third-largest HMO. Members can expect to see no changes in their services, as Rush Prudential is not controlled by Prudential. The acquisition, however, has raised concerns about increased negotiating leverage for Aetna, potentially leading to higher premiums and lower fees for health providers.

Key Takeaways:

  • Aetna's acquisition of Prudential HealthCare has made it the largest HMO in the country, surpassing Kaiser Permanente's 8.5 million members with 9.7 million members.
  • The deal is expected to reduce overall expenses by $150 million annually, with plans to eliminate 1,000 to 2,000 of Prudential HealthCare's 16,000 employees through layoffs and attrition in the next two years.
  • Aetna officials have stated that their primary focus is on cost-cutting and improving efficiency, but concerns have been raised about the potential negative impact on consumers, doctors, and hospitals due to increased negotiating leverage.
  • The acquisition has significant implications for the healthcare market, with experts questioning whether size will translate to more profit for Aetna, given Prudential's history of losses.
  • HMO mergers have been mixed, with some resulting in difficulties with integration, cost-cutting, and customer service.

Statistics:

  • Aetna's U.S. Healthcare HMO ranks seventh in local market share in the Chicago area.
  • The acquisition has added 1.2 million members at a cost of $1 billion, with Aetna paying $200 per member, a significantly lower rate than its previous purchases of NYLCare and U.S. Healthcare.
  • HMO premiums have risen 8 percent to 10 percent this year, twice the 1997 rate.
  • Aetna expects the deal to reduce overall expenses by $150 million annually.
  • The acquisition is expected to give Aetna more negotiating leverage, potentially leading to higher premiums and lower fees for health providers.

Sources:

  • Chrystal Caruthers Daily Herald Business Writer
  • Aetna spokeswoman Wendy Morphew
  • John Erb, health consultant with Gallagher Benefit Services
  • Charlie Inlander, president of the People's Medical Society in Allentown, Pa.