The designation for Humana Inc. is pictured at a health care facility in Queens, New York, U.S., November 30, 2021. REUTERS/Andrew Kelly/File Photo License Rights Acquired
Nov 29 (Reuters) – Cigna ( CI.N ) and Humana ( HUM.N ), two of the largest U.S. health insurers, are in talks for what could be the biggest merger announced in 2023. according to a source familiar with the matter.
The Wall Street Journal reported the talks earlier Wednesday, citing people familiar with the matter.
The companies are discussing a stock-and-cash deal that could be finalized by the end of the year, according to the report, without providing details on the value of the deal.
The combination of Humana and Cigna would give the combined company the scale to rival UnitedHealth Group ( UNH.N ) and CVS Health ( CVS.N ).
Cigna has a large pharmacy benefits unit, Express Scripts, which operates prescription drug plans and a strength in commercial insurance. It would join No. 2 Humana in the fast-growing market for Medicare Advantage plans, under which private insurers are paid a set rate to manage health care for people over 65 or disabled.
Humana, which has a market value of roughly $63 billion, declined to comment. Officials at Cigna, which has a market value of nearly $84 billion, did not respond to requests for comment.
Cigna shares fell nearly 8%, while Humana shares fell more than 4%.
The latest round of health insurance industry consolidation was prompted by the Affordable Care Act, the national health care reform law that passed in 2010 and in 2014 created new individual insurance options and expanded state Medicaid coverage for people with more low income.
But the biggest deals fell apart after a pushback from antitrust authorities.
In July 2016, the Justice Department filed lawsuits against two health insurance mergers on the same day, saying they would lead to less competition and higher prices for Americans. One was the planned purchase of Cigna by Anthem – now Elevance Health ( ELV.N ). The second was Aetna’s proposed acquisition of Humana.
Both companies fought the government and lost. Cigna tried to buy Humana before losing the bid to Aetna. Aetna was eventually absorbed by CVS Health.
Bill Baer, who was at the Justice Department when the lawsuits were filed in 2016, said talk of a Cigna-Humana merger was “surprising” given that the government successfully blocked two major health insurance mergers just a few years ago.
Health insurers are facing higher medical costs as people return for procedures they put off during the pandemic. They are also feeling pressure about reimbursement from the US government.
In February, Humana said it would sell its commercial business but keep its Medicare Advantage products. Reuters reported in November that Cigna was exploring the sale of its Medicare Advantage business.
OVERLAPING BUSINESSES
If companies divest from overlapping businesses, those issues will be eliminated and antitrust risk will be reduced, said Andre Barlow of Doyle, Barlow and Mazard PLLC.
“It would be smart to do that even before the deal is announced,” he said.
Assuming Cigna does sell its Medicare Advantage business, Bernstein analyst Lance Wilkes said in a research note that antitrust authorities may look at the impact on pharmacies and providers of combining their drug benefit management (PBM) businesses. Humana manages Medicare drug benefits, while Cigna’s Express Scripts is one of the nation’s largest PBMs.
Craig Garthwaite, a health economist at Northwestern University, said he expected antitrust authorities to challenge the merger, but that selling Cigna’s Medicare Advantage (MA) business would improve the deal’s prospects.
“If you’re going to try to prepare for a better match with Humana from a regulatory perspective, dropping MA will make it a lot easier,” he said.
Reporting by Manas Mishra in Bengaluru, Diane Bartz in Washington and Deena Beasley in Los Angeles; Editing by Caroline Hummer and Bill Berkrot
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