AM Best Information Services

APRIL 26, 2021 08:30 AM (EDT)

Best’s Market Segment Report: Health M&A Brings Diversification and Scale, While Leveraging Innovation

 Jason Hopper
Associate Director, Industry Research and Analytics
+1 908 439 2200, ext. 5016

Bridget Maehr
Associate Director
+1 908 439 2200, ext. 5321
Christopher Sharkey
Manager, Public Relations
+1 908 439 2200, ext. 5159

Jim Peavy
Director, Communications
+1 908 439 2200, ext. 5644


OLDWICK - APRIL 26, 2021 08:30 AM (EDT)
The environment for mergers and acquisitions (M&A) among U.S. health insurers remains favorable as they continue to seek out diversification and growth opportunities, according to a new AM Best special report.

The new Best’s Market Segment Report, titled, “Health M&A: Offering Diversification and Scale, Leveraging Innovation,” notes that health insurers reported record earnings and accumulated a significant amount of cash in 2020. They also have maintained a heightened appetite for debt amid the prolonged, historically low interest rates in the credit markets.

The report notes that beyond traditional M&A activity, there has been a notable trend of increasing vertical integration and diversifying into other health services business. Insurers have been focusing on technology advancements and the entire health care delivery process to make their operations more efficient, including urgent care clinics, hospice facilities, wholesale distributors, provider practices and pharmacy benefit managers (PBM). These service capability businesses help to better manage medical costs and also generally have higher margins.

“These initiatives aim to improve patient outcomes, create efficiencies, manage medical expenditures, improve coordination of care, increase access and address gaps in care,” said Jason Hopper, associate director, industry research & analytics.

However, prescription drug costs have been a driver of rising costs for health insurers, far outpacing hospital and outpatient costs. Between 2010 and 2016, the average growth rate of prescription drug expenses was more than 4%. Prescription drug expenses have held steady since as fewer new high-priced drugs have come to market.

“The flattening of prescription drug expenses has resulted in a decline in prescription drugs as a share of total benefits paid,” said Bridget Maehr, associate director. “Although fewer high-cost have come to market in recent years, health insurers are still looking to their PBMs to manage overall spending on pharmaceuticals, especially for specialty drugs.”

Some companies have found that when it comes to eliminating administrative costs and gaining efficiencies, affiliations are a better solution than M&A. Affiliations allow larger carriers to leverage their investments in technology; they also provide smaller companies with advanced data analytics and customized solutions that would normally be too expensive for them to implement.

By bringing together various components of the health care ecosystem through vertical integration to streamline processes, insurers aim to improve financial results and health outcomes. M&A has shifted insurers’ business profiles and premium mix and bolstered revenue growth, according to AM Best.

To access the full copy of this market segment report, please visit .

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City.