Massive Consolidation Among Healthcare Payers

The month of July saw a major rumble in the payer world. First, Aetna announced a $37 billion agreement to acquire Humana at the beginning of July—a deal that had been anticipated for weeks and moved forward after the US Supreme Court left intact a key piece of the Affordable Care Act (ACA). In less than a month following the Aetna-Humana merger, Anthem announced the purchase of Cigna for $54.2 billion after a month of rocky negotiations.

Both deals continue the trend of consolidation that has swept the healthcare industry since passage of the ACA and would shrink the US health insurance market from 5 big insurers to just 3. Some fear that ongoing consolidation will thwart competition and drive up prices for consumers, undermining a key goal of the law.

Reports of the Aetna-Humana deal had been floated since the spring, but both sides awaited the outcome of King v. Burwell; on June 25, the Supreme Court ruled 6—3 that consumers in states without healthcare exchanges could still obtain financial assistance to buy coverage.

Aetna has benefited from the ACA and looks to keep up that trend in its acquisition of Humana, which is the nation’s second-largest provider of private Medicare coverage. New rules proposed by CMS will call for increased movement to payment reform in both Medicare and Medicaid, and for more seamless transitions for consumers who move between Medicaid and coverage on the exchanges that are purchased with tax subsidies. Thus, having strong footholds in all sectors of public coverage will prove beneficial, analysts have said.

While Aetna is currently the larger company by revenue, its number of Medicare enrollees is smaller at 1.26 million, compared with Humana’s 3.2 million. Value of this sector is expected to increase as the baby boomer population ages.

Joseph R. Swedish, Anthem’s chief executive officer, will serve as chairman of the board and chief executive of the new combined company from the Anthem-Cigna merger—the combined revenue is estimated at $115 billion. David Cordani, chief executive of Cigna, will be president and chief operating officer, and once the deal closes the Anthem board of directors will be expanded to 14 members with Cordani and 4 other members of Cigna’s current board joining.

The purchase of Cigna will give Anthem more negotiation power with hospitals and doctors. Two-thirds of the combined entity’s new membership will be in self-insured plans, 15% in traditional commercial insurance, 11% in Medicaid, and 4% in Medicare.

“Our companies share proud histories and an even brighter future,” Cordani said. “Going forward our new company will deliver an acceleration of innovative and affordable health and protection benefits solutions that help address our health system's challenges and provide supplemental insurance protection, and health care security to consumers, their families, and the communities we share with them.”

On June 20, Anthem proposed to acquire Cigna for $184 per share, which valued the company at $53.8 billion; however, Cigna's board of directors deemed the proposal inadequate, and expressed concern that Swedish would assume 4 roles: chairman of the board, chief executive officer, president, and head of integration.

At this time only UnitedHealth Group, the current largest American insurer, has sat out of the merger frenzy. Once Cigna and Anthem combine, the new company will have 53 million members, which is more than UnitedHealth.

The Anthem-Cigna purchase and the Aetna-Humana purchase are both still subject to regulatory review.

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