HealthCareFinance.com
July 06,2015

Aetna buys Humana for $37 billion in largest-ever insurance merger.
The deal is also the fourth-largest consolidation in the American economy this year.

Aetna will pay $37 billion cash and stock to acquire Humana, the companies announced on July 3, in what will be the biggest health insurance merger to ever hit the industry.

“The acquisition of Humana aligns two great companies,” said Aetna chairman and CEO Mark Bertolini. “The complementary combination brings together Humana’s growing Medicare Advantage business with Aetna’s diversified portfolio and commercial capabilities to create a company serving the most seniors in the Medicare Advantage program and the second-largest managed care company in the United States.”

With Humana valued at $37 billion, or $230 per share, the deal is the fourth-largest consolidation in the American economy this year, ranking behind HJ Heinz’s $44 billion takeover of Kraft Foods and the pending $79 billion Charter-Time Warner deal. The acquisition is the largest consolidation in the global insurance industry, exceeding Swiss property and casualty giant ACE’s proposed $28 billion takeover of the Chubb Group and the $1.6 billion Anthem-WellPoint merger in 2004. Aetna said it will cover the costs through a combination of cash and stock, based on the company’s closing stock price of $125 on July 2.

[Also: Anthem, United eye big deals as game of thrones raises concerns]

The deal is part of an expected wave of consolidation in managed care and health insurance. Anthem may chase an acquisition of Cigna after its earlier $50 billion bid was rejected. Meanwhile, Centene, a growing St. Louis-based Medicaid managed care company, is going ahead with a $6.8 billion acquisition of Health Net.

Aetna told investors that the deal should yield $1.25 billion in 2018, along with higher operating earnings in 2017.

For health systems, the insurance industry consolidation brings cost containment and competitive pressures but it also creates opportunities for collaboration. A large part of Aetna’s accountable care strategy has involved new health plan networks designed and co-branded with health systems like Banner Health and Catholic Health Initiatives. Aetna is also helping some hospital systems launch their own health plans for their workforce and for regional employers.

If the deal is approved as a whole by regulators, Humana will bring Aetna’s membership to more than 33 million. Humana will add 3 million seniors on Medicare Advantage, as well as 4.3 million Medicare Part D drug plan customers, 1.1 million individual members (including some high-cost Affordable Care Act exchange populations in markets like Georgia), 1.8 million members in employer-sponsored plans, and more than 3 million military plan members

Oregon’s insurance regulator has approved big premium increases sought by health plans for 2016 under the health law, and in some cases ordered higher raises than insurers requested, signaling that the cost of insurance for people who buy it on their own could jump after two years of relatively modest growth.

Around the U.S., the biggest insurers have proposed hefty premium increases for the year ahead, based on what they say they now know about the costs of covering people newly enrolled under the Affordable Care Act. Supporters of the law have been counting on state regulators to rein in hefty premium increases for the law’s third year in full effect.

But in Oregon, the first state to announce final 2016 rates, Insurance Commissioner Laura Cali approved an average 25.6% increase for Moda Health Plan Inc., the biggest plan on the state’s health exchange. She also gave a green light to average increases of 30% or more for four smaller companies. And she required plans that hadn’t attempted to raise rates to do so anyway, including Kaiser Foundation Health Plan of the Northwest, by an average of 8.3%.

Ms. Cali said the changes were necessary for plans to stay afloat. State actuaries had reviewed claims incurred in 2014 and concluded they exceeded premiums collected that year by $127 million, or an average of $624 a person who signed up for insurance on their own, she said.

WSJ July 06, 2015
The U.S. Food and Drug Administration approved Vertex Pharmaceuticals Inc.’s cystic-fibrosis drug Orkambi, which could treat as many as 8,500 patients in the U. S.—but at a whopping annual wholesale cost of $259,000 per patient.

The drug, a twice-daily oral tablet for patients 12 years and older, expands the company’s reach in the treatment of cystic fibrosis, the progressive lung disease that often kills patients in their 20s. Vertex said the new drug would be available within days. Orkambi is aimed at treating patients with a genetic mutation that is the leading cause of cystic fibrosis.

The U.S. Food and Drug Administration approved Orkambi Thursday. The Vertex pill, taken twice per day, is targeted at a genetic defect found in almost half of cystic fibrosis patients. Orkambi sales are expected to transform Vertex into a sustainably profitable company for the first time since its founding in 1989.

In approving Orkambi, the FDA concurred with the positive recommendation from a panel of outside experts who voted 12-1 in May that two large clinical trials conducted by Vertex provided sufficient evidence to support the efficacy and safety of the drug. European drug regulators are also reviewing Orkambi with an approval decision expected in the fourth quarter.

Enacted by the California legislature in 2014, the California Healthy Workplaces, Healthy Families Act takes effect July 1, 2015.

Under AB1522, California’s new paid sick leave law requires:

•All employers with one or more employees who work 30 or more days per year to give each employee at least 24 hours of paid sick leave annually

•One hour of sick leave be awarded for every 30 hours worked or employers can award 24 hours of paid sick leave as a lump sum at the beginning of each year

•Employers must permit employees to roll accrued sick leave over to the next year (Employers can cap accrued sick leave at 48 hours and may limit actual annual paid sick leave use to a maximum of 24 hours)

HOW IS LEAVE EARNED?

Effective July 1, 2015, employees who have worked 30 days in California within one year are eligible to accrue paid sick leave at a rate of one hour of sick leave for every 30 hours worked. For exempt employees, a workweek will be considered to be the lesser of 40 hours or the actual normal workweek. Workers must be allowed to roll accrued sick leave over to the next year, but employers can cap the amount of sick leave accrued at 48 hours and may limit the actual annual use of paid sick leave to a maximum of 24 hours.

Employers may, instead of using the accrual method described above, opt to provide a lump sum of 24 hours of sick leave at the beginning of each year. Provided that a new bank of 24 hours is immediately available in the new year, sick leave remaining from the end of the prior year from this lump sum bank does not need to carry over from the prior year.

Accrued paid sick time is not required to be paid out at termination unless it is part of a combined paid time off (PTO) plan. If an employee is rehired within a year, however, the previous paid sick leave balance must be restored

Employee Benefits News April 8, 2014

Even five years after its enactment, the Affordable Care Act continues to draw strong opposition. And while it’s still the early days for the ACA, so far “there’s no evidence of any major disruption to the existing employer-sponsored insurance market,” said Jonathan Gruber, an MIT economist and proponent of the law, during a recent event hosted by Sun Life Financial and Bloomberg.

He attributed widespread skepticism about the law to politics, saying “there’s a continued enormous lack of understanding about what the law does that I think is a direct result of the large level of [political] opposition to it.”

And while avoiding the ACA’s Cadillac tax is front-of-mind for many benefit decision-makers, Gruber maintained the tax is only a mechanism to offset the existing discount already provided to health insurance benefits in the tax code.

“Health insurance is compensation and wages are compensation. They should be taxed the same. And they’re not,” said Gruber. The result is a system that is expensive, unfair and encourages excessive consumption, he believes. “If the U.S. taxed health insurance like wages, we would raise $250 billion more a year in revenues,” he said. Moreover, “the richer you are, the bigger tax break you get because your tax rate is higher.” And, finally, he said, such as system encourages excessive consumption because people are buying health insurance with after-tax dollars.

But Michael Cannon, director of health policy studies at the Cato Institute, believes the still-on-the-horizon Cadillac tax is unlikely to remain in its current form. “A lot of employers are going to be hit by that tax, more and more over time, and more people are going to learn that promise of ‘if you like your health plan you can keep it’ was a false one,” he said.

“The question is how will Congress respond? There are going to be a lot of people who want to repeal that tax on its own, but I think a lot of proponents of the ACA will say to employers and others who want to get rid of the tax: ‘We’ll help you do that, but you have to go along with part of a broader effort to reopen the ACA and repeal parts of it.’”

The Cadillac tax, set to go into effect in 2018, is a 40% excise tax on health coverage that costs more than $10,200 for an individual or $27,500 for a family. About one-third of employers are currently at risk for triggering the tax in 2018 if they make no changes to their most costly plan, according to consulting firm Mercer’s National Survey of Employer-Sponsored Health Plans.

But the Cadillac tax, said Gruber, is merely a way to equalize the way wages and health insurance are taxed. “It’s essentially offsetting the existing discount in the tax code,” he said, emphasizing it’s not a new net tax. “It’s offsetting a benefit they really shouldn’t be getting in the first place.”

The intended goal of the Cadillac tax, said Gruber, “is for employers to make the most appropriate tradeoff between wages and health insurance for their employees. I think general economic theory and evidence suggests a number of employers are not doing that – they’re providing health insurance which is more generous and wages that are lower than what makes their employees the best off. … the Cadillac tax moves them in the right direction of more appropriately having that trade-off – maybe a little bit more limited network can save a lot of costs and not really impede much the preferences of their employees.”

The Internal Revenue Service and the Department of Treasury are seeking comments about the Cadillac tax, including what constitutes employer-sponsored coverage and different approaches for determining the cost of applicable coverage. Comments are due May 15.

Gruber and Cannon agreed the Cadillac tax is likely to become an issue in the 2016 presidential election, but differed on the reasons why.

“It will have more of an impact on Democrat candidates. Republicans will just say ‘we hate taxes, we hate the ACA, we want to get rid of this tax,’” said Cannon, adding the Cadillac tax will affect many union plans and unions tend to support Democrats more often than they support Republicans. “There’s going to be a lot of pressure on Democrats from one of their key constituencies to do something to provide them relief from this tax.”

But Gruber believes the Republicans will face their own challenges with the Cadillac tax. “A long-standing Republican position has been to get rid of the employer tax subsidy and put them on to individuals instead. The Cadillac tax is heading in that direction,” he said. “So the question is: How does the Republican Party resolve its opposition, in some sense, to the fundamental employer system with the fact that this is the biggest thing we’ve ever done to try to get rid of something they’ve wanted to get rid of?”