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By Carl O'Donnell
Feb 9 Although judges shot down Anthem Inc's
$54 billion acquisition of Cigna Corp and Aetna
Inc's $35 billion takeover of Humana Inc on
anti-trust grounds, the rulings left scope for a possible
combination of Cigna and Humana, industry insiders said.
Cigna would have both the motives and finances to pursue an
acquisition of Humana, these experts suggested. Because of its
much smaller Medicare Advantage business, Cigna may have a
better shot at winning a regulatory green light, they added.
"They may have blocked the merger (with Aetna), but that's
not the end of the song," said Randal Schultz, an attorney at
Lathrop & Gage LLP focusing on the healthcare sector.
Cigna and Humana did not respond to requests for comment.
Aetna declined to comment.
A merger of Cigna and Humana would allow them to save money
by cutting back administrative costs in overlapping markets and
holding down healthcare costs by boosting the combined company's
bargaining power with healthcare providers and drug makers.
To be sure, further industry consolidation is not seen as
imminent following the scuppering of two mega deals in the
sector. Anthem has said it wants to appeal the court ruling and
Cigna is still weighing how to proceed. Aetna and Humana have
yet to announce their plans.
When asked whether a big deal is out of the question right
now, Cigna CEO David Cordani left the door open in a conference
call last week with analysts discussing fourth-quarter earnings,
saying "never say never, in terms of large versus small."
Moreover, U.S. President Donald Trump's intention to repeal
and replace his predecessor's signature healthcare law, the
Affordable Care Act - also known as Obamacare - will not remove
the incentives for health insurers to consolidate, and could
even bolster them.
With Republican lawmakers and policymakers in control of
Washington, Humana's Medicare Advantage assets could become even
U.S. House of Representatives Speaker Paul Ryan has argued
for more privatization of Medicare, the government-run insurance
program for the elderly and disabled. While the White House does
not yet back Ryan's proposal for government-sponsored vouchers
for private insurance plans, analysts say such a policy is
likely to spur more growth and profits in privately run Medicare
For Cigna, a deal with Humana could help offset its slower-
growing business managing insurance plans for large companies,
which makes up 85 percent of its revenues and is considered more
vulnerable to economic downturns.
Cigna's Medicare Advantage footprint is less than half that
of Aetna's, giving it a stronger footing with antitrust
regulators, investors and analysts said.
"There would be a lot fewer (antitrust) objections to a
Cigna buyout of Humana than there were with Aetna, and I think
Humana could get a higher price," said Jeff Jonas, a portfolio
manager at GAMCO Investors, which owns shares in all five big
U.S. health insurers, including Humana.
The terms of any new deal would need to reflect the fact
that some aspects of Humana's business has improved since it
agreed to sell itself to Aetna in 2015, Jonas said.
That includes Humana's decision to largely withdraw from the
online exchanges for individual plans set up by the Affordable
Care Act last year, Jonas said. Following losses it suffered on
these exchanges, Humana said this week its individual membership
participation was down 70 percent.
A NEW RACE FOR HUMANA
Humana emerged as a coveted acquisition target in 2015, when
an approach by Cigna triggered a sale process for the company in
which Aetna prevailed. Bidders were attracted to Humana's robust
presence in the fast-growing Medicare Advantage market, where it
has more than 3 million customers.
"We see real potential for Cigna to re-engage, and possibly
Anthem as well to be a factor," Justin Lake of Wolfe Research
wrote in a January note.
Cigna would likely be "much more willing" than Aetna was to
simply divest all of its Medicare Advantage business for
antitrust reasons, which is much smaller and is growing more
slowly than Aetna's, Lake said.
In total, Aetna provides Medicare Advantage services to
around 1.2 million people. Aetna had agreed to sell insurance
plans serving nearly 300,000 Medicare Advantage customers to
smaller peer Molina Healthcare Inc. But that was only
about half of the roughly 600,000 customers that JPMorgan Chase
& Co said it would have needed to sell to get a green
light from regulators.
Anthem could also potentially take an interest in acquiring
Humana, analysts said. However, it would likely face
considerably greater antitrust scrutiny. With more than $80
billion in expected annual sales, Anthem is roughly twice the
size of Cigna. It also has a larger Medicare Advantage business,
serving around 1.2 million people, compared with Cigna's roughly
While this would make it more difficult for Anthem to
compete against Cigna as a suitor for Humana from an antitrust
perspective, it could give Cigna grounds to argue that
competition would not be stifled were it to acquire Humana,
given Anthem's major presence in the market.
Humana could also attract interest from less obvious
players, including pharmaceutical benefits managers (PBMs) such
as Express Scripts Holding Co or CVS Health Corp.
, said Leerink Partners LLC analyst Ana Gupte.
CVS had no immediate comment. Express Scripts declined to
The model of combining PBMs, which negotiate drug prices on
behalf of insurers, with insurance companies themselves was
pioneered by UnitedHealth Group Inc. It doubled down on
the strategy in 2015 with the $12.8 billion acquisition of
That business, now part of its existing OptumRX unit,
outperformed analyst expectations during the latest quarter and
has won some large contracts away from competitors. The company
says owning the business helps it better assess customer health
costs, a key component of premium pricing and profits.
(Reporting by Carl O'Donnell in New York; Additional reporting
by Caroline Humer in New York and Diane Bartz in Washington,
D.C.; Editing by Greg Roumeliotis and Dan Grebler)