Love seems to be in the air for health insurers this week.

Investors are driving publicly traded health insurers’ stocks higher based on speculation that the biggest players in the market, Anthem Inc. (NYSE:ANTM) and UnitedHealth Group Inc. (NYSE:UNH), are in the mood for romance.

Enrollment is high, profits at most big health insurers have been strong, and health insurers with the means to extend their private Medicare plan operations seem to have an itch to do so.

Market watchers have suggested that one constraint on mergers and acquisitions (M&A) activity may be antitrust concerns.

Brian Wright, a securities analyst at Sterne Agee CRT, has run the numbers and tried to see which big insurers might have to give up the most business, for antitrust reasons, if they got hitched.

He says UnitedHealth and Aetna Inc. (NYSE:AET) would have market share over 20 percent in 24 states, and that Anthem and Humana would combine for market share over 20 percent in 14 states. If Anthem bought Humana, it would probably have to sell Humana’s commercial insurance operations to some other company, but it could also get a big boost from merging its pharmacy benefits manager (PBM) unit with Humana’s PBM unit, Wright says.

Securities analysts are also trying to determine how various types of Supreme Court rulings on King v. Burwell (Case Number 14-114) could affect the health insurer M&A game.

One possible M&A driver that has come up less often is insurer concerns about the Patient Protection and Affordable Care Act (PPACA) “three R’s” risk-management programs.

A temporary reinsurance program, funded by all insurers, is supposed to protect individual health insurers against catastrophic claim risk.

A temporary risk corridors program is supposed to use cash from successful insurers to protect exchange plan issuers with weak operating results.

A permanent risk-adjustment program is supposed to use cash from insurers with relatively low-risk enrollees to help plans with more than their fair share of high-risk enrollees.

The performance of the programs may be crucial to some insurers’ survival, yet insurers may not even know for sure how the programs worked for 2014 until sometime in 2016, or even later, if appeals drag on.

The Center for Consumer Information & Insurance Oversight (CCIIO) has been holding webinars telling insurers how to feed data into the three R’s programs, and it has said it will try to tell insurers about their reinsurance and risk-adjustment program “receivables” and “payables” by June 30.

The receivables are the money the companies hope to get from the programs. The payable is the amount a company may have to pay into the risk-adjustment program.

For a look at reasons those receivable and payable numbers could affect M&A appetite, read on. 

Clocks

1. Insurers are not sure how quickly they’ll understand how, and whether, the three R’s will work.

The Centers for Medicare & Medicaid Services (CMS), CCIIO’s parent, has already acknowledged that the PPACA reinsurance program is likely to get only $10 billion of the $12 billion in anticipated in revenue.

CMS had hoped to pay reinsurance program profits into the Treasury, but it’s now just hoping to have enough cash to pay claims.

An analyst at Standard & Poor’s Rating Services has estimated the risk corridors program may get only 10 cents in cash from thriving insurers for every $1 of cash that could, in theory, be going to insurers with bad results.

Other PPACA programs have generally started slowly and suffered from glitches, and the U.S. Government Accountability Office (GAO) has reported finding evidence that the three R’s programs may be starting slowly, suffering from glitches, and leaving insurers feeling stranded.

Smaller insurers without the wherewithal to cope with long periods of confusion and uncertainty may prefer to partner with larger organizations.

Disappointed woman

2. Even if the three R’s programs work, they may pay some insurers less than those insurers expected, and they may bill insurers for more payments than expected.

CCIIO is giving insurers only a limited amount of time to protest receivables and payables decisions, and insurers that feel as if they have been shortchanged may not get much sympathy if they turn to federal regulators or Congress for relief. They may have an easier time getting acquired than getting unfairly low three R’s receivable numbers corrected.

See also: CCIIO posts health plan filing dates

And some insurers may feel as if they can make better M&A deals now, before information about the actual three R’s payables and receivables becomes public, than after the reports come out.

Empty pockets

3. Other sources of capital may be difficult to tap.

Publicly traded companies use their stock as currency. They often fund deals by paying for the deals with stock, or by selling stock to raise cash.

Today, investors tend to see PPACA as a force that helps hospitals and is good for health insurers’ revenue growth, if not necessarily for their profit margins.

See also: Aetna: What PPACA problem?

News of three R’s glitches could hurt investors’ views of PPACA, rattle health insurer stock prices, and slow health insurers’ ability to close deals.

Bigger, healthier insurers that know they’ll be paying large sums into the three R’s to help sicker competitors may see acquiring the sicker competitors as a way to get an ownership stake in the competitor in exchange for shoring up the competitor, rather than simply getting a feeling of civic pride for contributing to a risk-management program.

Girl bopped on head by ball

4. If three R’s problems kill some health insurers, that could increase state life and health guaranty association assessment costs.

The associations are supposed to help pay the insureds’ claims if a health insurer fails. The associations don’t charge regular dues. They raise cash when necessary by sending assessment bills to the members when other members collapse.

State rules generally limit associations from imposing assessments equal to more than 2 percent of an insurer’s annual premium revenue.

See also: What happens if health insurers fail?

But even having to pay an assessment bill equal to 2 percent of premiums may be difficult for solvent but ailing, cash-strapped insurers. Those insurers may face pressure to deal with assessment bills by finding a buyer.

Image: TS Photo/Rick Gomez 

Shotgun wedding

5. State insurance regulators could play matchmaker.

In the past, when the banking system has gone through waves of failures, banking regulators have tried to protect consumers by pushing solvent banks to acquire failing banks and simply absorb the failing banks’ depositors, without the depositors having to file Federal Deposit Insurance Corp. (FDIC) claims.

See also: History And Trends Do Not Always

If health insurers go through a wave of failures, state regulators could try to ease pressure on consumers and guaranty associations by maneuvering insurers to the altar.

Image: TS Photo/Jared Wold