Insurers banking on Obamacare

The big guys get bigger. The industry consolidates. Competition diminishes.

Obamacare is doing just what big-government intervention typically does.

Bloomberg reports:

Aetna Inc. (AET), the third-biggest U.S. health plan, agreed to buy Coventry Health Care Inc. (CVH) for $5.6 billion, in the latest bid by an insurer to boost government business under President Barack Obama’s health overhaul.

Aetna joins competitors WellPoint Inc. (WLP) and Cigna Corp. (CI) in making acquisitions over the past year as the U.S. government expands medical coverage. The purchase means 30 percent of Aetna’s revenue will come from federal-backed plans for elderly Medicare enrollees and low-income Medicaid patients, compared with the current 23 percent. Aetna’s reach in the markets for small businesses and individuals will also grow….

Here’s the key part:

“Scale matters now,” said Coventry CEO Allen Wise. “Our senior management board and board thought it was in the best interest of our shareholders, that we were stronger together than apart.”

As government gets bigger, business has to get bigger or die. Ira Stoll explained the health-insurers’ great stock performance back in February.

being one of just a few vendors of a product that the government is going to force every American to buy isn’t such a bad business to be in. That’s especially so given the high barriers to entry, both regulatory and capital, facing anyone trying to start a new health insurance company. If anything, the share prices are an affirmation not of the Republican criticism that ObamaCare would kill the insurance companies, but of the left-wing Democratic criticism that the bill was a government giveaway that would enrich the insurance companies.

Footnote: Obama is easily the biggest recipient of health-insurer money this election, and most of the big insurers have outperform