Two of the insurers that have benefitted most from the Affordable Care Act have announced plans to join forces, and the timing could prove fortuitous.

Centene is buying frequent Medicaid competitor WellCare in a $17.3 billion transaction, which will give the combined carrier outsized clout in Medicaid, new states of operation, and several lines of business where Centene and WellCare can leverage their expertise, especially Medicaid and dual-eligible populations.

While the merger means less competition overall, it will undoubtedly spur some divestitures. The two companies’ Medicaid footprints overlap quite a bit, and it’s unlikely their combined market share in states such as Florida, Illinois, and Missouri will pass regulatory muster.

Just as WellCare benefitted from the largesse of the CVS-Aetna merger by acquiring Aetna’s stand-alone Part D business, smaller, regional plans are likely to factor into the merger in states such as Florida where both plans have large books of Medicaid business. In lieu of divestitures, state Medicaid programs affected by the merger also could redistribute the Centene and WellCare lives to other MCOs.

Centene will more than double its book of Medicare Advantage business and see a sizable increase in dual-eligible lives. Both companies have long track records with the hard-to-manage dual-eligible population. With mainstream Medicare Advantage penetration expected to surge in the next decade, the combined company would be a stronger competitor against MA giants UnitedHealthcare and Humana.

The commercial impact should be much softer. Centene’s non-exchange commercial lives are only strong in California because of its legacy Health Net business. In fact, the commercial impact could be strongly influenced by the latest ACA threats.

While mergers such as Centene-WellCare are usually in the works for months before going public, it’s hard to overlook the timing of the announcement. Medicaid expansion has been a boon for both carriers. Centene has been among the few for-profit insurers to dive deeper into the health insurance exchanges while other plans retreated. WellCare has a tiny block of commercial lives, and any state where WellCare has Medicaid enrollees and Centene lacks a presence could be a future exchange expansion target.

Depending on which way the pendulum swings on ACA this time, the combined company could be better suited to weather any chaos that would result from the whole law being overturned (end of Medicaid expansion, shuttering of exchanges, closing of rural hospitals).

Bill Melville is a principal analyst at DRG and national healthcare policy expert whose work appears in Health Plan Analysis and Market Overviews. Follow him @BillMelvilleDRG


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