New signs that insurance companies might control senior living's destiny

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John O'Connor
John O'Connor

A long time ago in what seems like a galaxy far, far away, I listened to two executives conduct a lively debate. At issue was whether assisted living or skilled care settings were better positioned to be the future hub of senior living.

Each CEO made salient points about why his setting likely would win out. The back-and-forth was civil and thought-provoking. And in the end, it also probably was meaningless. Because it's starting to look like both options simply may become spokes connected to a hub controlled by somebody else.

Will that hub be manned by hospital systems? Perhaps. What about drug companies? Maybe. But if I were a betting man, I'd put my money on the health insurance companies.

For evidence this scenario might win out, look no further than this week's sale of Kindred Healthcare. Who is paying $4.1 billion for this senior living juggernaut? Why, no other than investors that include Humana.

Insurers are well-positioned to play a more central role in the future of healthcare for three obvious reasons. The first is that the people who run these companies tend to be extremely smart. Second, they don't want to be left behind when their competitors start consolidating power. Finally, and perhaps most important, they also tend to have a lot of money at their disposal.

Take a look at the names on the tallest buildings in your town. Chances are good that insurance company names appear on a disproportionate share of them.

And it looks like health insurers soon might have a lot more loot to throw around. Thanks to the new tax overhaul (which will trim corporate tax rates from 35% to 21%), they are in for a windfall. By some estimates, health insurers will see their profits rise by 10% to 15%. And it's not as if they were scraping by to begin with.

In fact, the major for-profits in the insurance field stand to see earnings per share rise by 24% to 62%, according to Cowen and Company analysts.

That's the kind of firepower you'll be up against as you build your senior living empire. Future as a hub? Sadly, future as a pawn may be more like it.

John O'Connor is editorial director of McKnight's Senior Living. Email him at john.oconnor@mcknights.com.

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