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INSURANCE: Less Competition Among Insurers, But More Competition From Banks?



December 5th, 2006

The health insurance industry will continue to consolidate, WellPoint, Inc. chairman, president, and CEO Larry Glasscock told me in an interview published November 28 on the Health Affairs Web site [2-week free access]. Glasscock also cautioned, however, that health insurers could face new competition from financial services companies.

“If you look at other industries, where economies of scale exist, you see more consolidation. Ten years ago, in our business, the top ten insurers covered about 27 percent of the membership, nationally. Today, the top ten companies cover about 50 percent. In ten years, it has consolidated that much, and I think that it will continue in the future,” said Glasscock.

However, the former banking executive also said that he would not be surprised if a major financial services company “made a serious effort to become a formidable force within health insurance.” Traditionally, financial services companies “have focused on the brokerage aspect of health insurance – finding coverage for their individual and small-group clients – and have stayed away from actually underwriting coverage,” Glasscock said. But “we are seeing some convergence of financial services and health care, driven in part by this whole notion of consumer-directed health plans, health savings accounts, and financial resources that will be dedicated to that.”

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2 Responses to “INSURANCE: Less Competition Among Insurers, But More Competition From Banks?”

  1. John Iglehart Says:

    Matthew Holt’s comment brings up what Larry Glasscock said immediately after the part of his comments quoted in the post above (the new material is in italics):

    “We are seeing some convergence of financial services and health care, driven in part by this whole notion of consumer-directed health plans, health savings accounts, and financial resources that will be dedicated to that. So I think that the question then becomes, to what extent will insurers allow themselves to be disintermediated by the financial services enterprises? The Blue Cross and Blue Shield system has formed a bank called the Blue Bank, and WellPoint is one of the investors in that bank.”

    The Blue Bank would reportedly manage health savings accounts for its member insurers.

  2. Matthew Holt Says:

    That’s funny, it’s exactly the wrong way around–although Glasscock’s right that they’re getting closer together. In the last ten years insurers have gotten out of the business of managing risk precisely by using underwriting techniques to avoid risk, and the need for risk/medical management. So they’re the ones moving into the bank’s business of account management, and financial distribution.

    Nonetheless this academic point does not excuse John Iglehart for avoiding asking Glasscock any questions about his company’s appalling behavior in the last year or so. Are you going to print the letter I submitted as a response to the article about that?

    You can read Matthew Holt’s letter here.

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