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Porter’s Five Forces of Anthem

Anthem is a health insurance providing company in the United States. It is one of the largest for-profit health insurance companies in the country. It was found in 2004 after the merger of WellPoint Health Networks and Anthem Insurance (Matthews, 2014). Its headquarters are in Indianapolis, Indiana. In 2018, the company generated revenue of $92.105 billion and had approximately 64000 employees across the country (US SECP, 2019). The number of members is more than forty million. The company operates under various names such as Anthem Blue Cross, Empire BlueCross Blue Shield, and Anthem Blue Cross and Blue Shield.
Following is a detailed Porter Five Forces Model Analysis of Anthem:

Competitive Rivalry – High

The main competitors of Anthem are Centene, Oscar Health, Humana, Aetna, and United Health. The industry has the potential to grow as new competitors enter the market. The fixed costs of the business are moderate which are in the form of establishing the business, office space, and strategies to attract consumers. Products each company offers differ from each other in terms of coverage, premium, and other factors. It is not easy to exit the business as insurance contracts require the company to provide long-term commitments. Customers also incur high costs if they switch to another insurance provider. Companies are required to explain to the customers what they have on offer to help them understand their insurance plans. As a result, competitive rivalry is high.

The Threat of New Entrants – Moderate

Unlike other industries, establishing a business in the health insurance industry does not require extensive capital investment. However, existing firms have developed cost and performance advantages to generate maximum returns from premiums. The services are not proprietary. Those in the market have also established themselves as brands through extensive marketing. A new entrant would require extensive marketing to develop brand repute and start gathering members. Also, developing investment plans to ensure returns on premiums require time (FFU, 2018). This reduces the threat of new entrants to moderate.

Bargaining Power of Suppliers – Moderate

Suppliers for the health insurance companies are the investment firms that provide them with returns on the investments they have made. These products are not standardized and unique for each customer. Also, insurance companies can switch to other firms but that has additional costs as investments are made for long-term and breaking them has charges. Since the company offers portfolio management firms with investments in millions, they give these companies importance. The number of suppliers is also large as there are numerous investment companies. Also, a supplier would find it difficult to develop trust with an insurance company and force them to invest with them. These factors render the bargaining power of the supplier moderate.

Bargaining Power of Buyers – High

The number of buyers is in millions and each of them buys insurance plans that range in thousands of dollars. If a buyer wishes to switch to another insurance company, they may have to pay higher premiums or suffer a loss of the insurance plan they already have in hand. The buyer also needs a lot of information from the company before they agree to an insurance plan and they are aware of the need for information. Customers cannot create their insurance plans. Hospitals and healthcare providers do not accept such plans. The customers are price sensitive and tend to choose plans that offer flexible and affordable premium plans. The plans are unique and designed for each customer based on their age, lifestyle, and previous medical history. Individual buyers are offered unique rates based on certain factors and loyalty with the company. As a result, the bargaining power of buyers is high.

The Threat of Substitutes – Moderate

The substitutes for health insurance plans are saving your own money to pay for medical bills, availing welfare, and so on. However, each of these substitutes has a performance limitation. Paying medical bills from personal savings for each hospital visit can become costly. Also, there is no certainty about the number of visits an individual may need. Switching to a substitute also has a cost. Also, customers are likely to go for social welfare plans but not for any other substitute. They would prefer to purchase health insurance to remove certainty and provide coverage for themselves and their loved ones.

References

FFU, 2018. Anthem, Inc. Porter Five Forces Analysis. [Online] Available at: http://fernfortuniversity.com/term-papers/porter5/analysis/1518-anthem–inc-.php [Accessed 12 Dec. 2019].
Matthews, A., 2014. WellPoint Changes Its Name to Anthem. [Online] Available at: https://www.wsj.com/articles/wellpoint-changes-its-name-to-anthem-1407877202 [Accessed 12 Dec. 2019].
US SECP, 2019. Annual Report. [Online] Available at: https://last10k.com/sec-filings/antm#link_fullReport [Accessed 12 Dec. 2019].

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