CVS merges with Aetna in a $69 billion acquisition

In the tenth largest business acquisition of the decade, Convenience, Value and Service (CVS) purchased insurance company Aetna for $69 billion dollars, becoming one of the largest players in the US health insurance market.

The acquirement of Aetna gives CVS control over the health insurance of about 23 million Americans and the ability to distribute insurance at any one of its 10,000 pharmacies, as stated by The New York Times. During the announcement of the acquisition on Dec. 3, Aetna announced that the merge will aim to reduce costs for consumers by consolidating the services of insurance, prescriptions and care under one roof. These services may be able to better coordinate with one another; Aetna’s insurance could be used to pay for CVS’s healthcare services, while the medical information CVS has gathered from consumers may be utilized to modify their Aetna insurance premiums. The companies wish to streamline and simplify healthcare in order to appeal to consumers who dislike the fragmentation between unintegrated healthcare services and insurance programs. Aetna stated that CVS’s communal reputation and numerous locations will help Aetna draw in customers who trust the CVS brand.

John W. Rowe, the former CEO of Aetna, claims the merge will enable CVS to upgrade its “Minute Clinics,”the stations CVS uses to provide basic care, into facilities which can provide more advanced services, especially those related to vision and hearing. Instead of heading to the emergency room or a specialist to treat, for example, a moderate allergic reaction or a strong flu, CVS may be both a cheaper and closer alternative.

The business move occurred in the wake of Tax Cuts and Jobs Act (TCJA) passed by the Senate on Dec. 1. According to the nonpartisan Congressional Budget Office, the TCJA’s removal of the Affordable Care Act’s tax disincentive—for those who do not purchase health insurance—will reduce the federal budget dedicated to healthcare. The decision may lead to increased insurance premiums and reduced funding for the social programs Medicare and Medicaid. CVS’s and Aetna’s actions are indicative of a general trend among healthcare companies to accommodate for a growing need for packaged services, which have a lower cost than their separated counterparts. For instance, insurance companies Oscar Health and UnitedHealth combined with the healthcare organizations Cleveland Clinic and Rally Health during 2017.

“While this integration may have many benefits for those insured by Aetna, I hope CVS does not heavily discourage insurance programs outside of Aetna’s. If CVS centers its marketing solely around Aetna customers, then the uninsured may be given higher prices than normal and not be able to access CVS,” Senior Ujjaini Mukhopadhyay said.

According to The New York Times, merger analysts believe the acquisition will encourage CVS to force Aetna customers into receiving service only from CVS pharmacies and personnel through restrictive pricing, reducing options for consumers. Skeptics like Martin Gaynor, a health economist from Carnegie Mellon University, believe CVS’s goals in expanding healthcare are too ambitious; the corporation has empirically failed at expanding the retail clinics in its healthcare sector.

The Justice Department’s recent lawsuit against AT&T’s $85.4 billion dollar attempt to absorb Time Warner Cable indicates that the Trump administration may give CVS’s move similar treatment. Moreover, by blocking Aetna and Walgreens from combining with Humana and Rite-Aid, respectively, the department has set a precedent of indicting trusts in the healthcare industry. Analysts fromReuters claim that the companies’ overlap in the Medicare industry could signal to the Justice Department that CVS and Aetna aim to reduce competition within that field and spark a lawsuit. Until the merge finishes during the second half of 2018, the companies may have to prepare for a reversal of plans in the event of government interference.

“It is important to remember that CVS and Aetna are companies at the end of the day. Their sole role is to make money. If helping Americans helps them best achieve their goal, then they will do that. If taking advantage of consumers helps them best achieve their goal, then they will do that as well,” Freshman Nikhil Chandra said.