The Real Reason Why CVS is Spending $69 Billion

To understand the first reason as to why CVS is purchasing an insurance company for $69 Billion, we need to take a step back.

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You need to understand how your doctor, your insurance, and your medicines are all interconnected (assuming you live in the United States).

So, let’s create a scenario to help add color to this grey phenomenon.

You wake up one morning and your head hurts - Really badly.

Your nose is running, and you’re shivering despite being under the covers and wearing your favorite ugly christmas sweater.

It doesn’t make sense - you felt just fine last night.

And as all humans do when they feel sick, you end up calling your mom. She reminds you where your insurance card is kept, and advises you to the head to the doctors.

You reach the doctor’s office; you go through the motions of coughing when he/she asks you to; he/she takes your temperature, and reaches the same conclusion that you did two hours ago - you are sick.

The doctor tells you to pick up some medicines from a nearby pharmacy.

You head to the pharmacy, and Walgreens is more than happy to sell you the uber-expensive medicines.

You head home, take your meds, and fall fast asleep.

Here’s what’s happening behind-the-scenes, and how CVS is capitalizing on this

When you go to the doctor, you’re paying a fraction of his/her fees. Your insurance company covers the majority of the costs.

When you head to the pharmacy, you’re paying a fraction of the costs of the medicine. Your insurance company covers the remainder of the costs.

When you’re healthy, you’re paying your insurance company to help you out for when you do get sick.

And this leads us to the problem with our health system - contrasting incentives.

Incentives

You don’t care how much your doctor charges you.
Why?
Because your insurance company will bear some of the costs anyway.
Your doctor doesn’t care how expensive the treatment is.
Why?
Because the doctor gets paid anyway.
You aren’t as worried about medicine costs.
Why?
Because your insurance company will bear some of the costs anyway.
Your pharmacy doesn’t care how expensive medicines are.
Why?
You’re going to buy them anyway.

 

Your insurance company.
Oh.

Hmmm.

Your insurance company cares about everything I just mentioned. Your insurance company wants to pay as little to your doctor and your pharmacy as possible, but it’s really hard to convince you or your doctor to pay/charge less.

This is what CVS is capitalizing on.

You see, CVS wants to own and profit off of all 3 components of this healthcare conundrum.

CVS owns over 1,100 MinuteClinics in 33 states. MinuteClinics are mini doctor offices inside of regular CVS pharmacies aiming to provide quicker and cheaper medical consultation.

CVS also owns almost 10,000 pharmacy locations.

CVS is about to own an insurance company.

So when you wake up and feel sick, in the past, you would pay your doctor $20. Aetna would pay your random doctor the remaining $80. When you head to the pharmacy, you would pay $20. Aetna would pay the remaining $20.

But now, when you head to the MinuteClinic, you pay $18 (if you subscribe to the CVS/Aenta insurance plan). Aetna has no payout to a doctor - because MinuteClinic is Aetna. When you head to the pharmacy, you pay $18 again, and Aetna pays no one - because CVS is Aetna.

With 10,000 baby boomers retiring every day and humans generally living longer than ever before, premiums and prices have to rise for these insurance companies to stay in business to keep up with rising medical expenses that their customers incur.

CVS is getting rid of overcharging by doctors, overtreatment by specialists, and oversubscription of medicines by combining all 3 industries. And what happens to the money that isn’t spent on doctor fees and extra medicine?

CVS capitalizes on it.

So when CVS announced its $69 Billion purchase of an insurance company, it really announced an $96 Billion profit producing conglomeration.

The surprising part - that’s only half of the entire equation. The second reason why CVS is making this move - be the first to find out.