Cigna and Humana are rumored to be in talks to combine through a stock-and-cash deal, which would create a company comparable in size to UnitedHealthcare and CVS/Aetna, according to a Wall Street Journal report published Wednesday. The rumors aren’t surprising and make a lot of sense for the two companies, one industry expert said.
The deal would likely come in the form of an acquisition of Humana by Cigna, predicted Ari Gottlieb, principal of A2 Strategy Corp. David Cordani, CEO of Cigna, would likely be the CEO of the combined company, he added. Bruce Broussard, CEO of Humana, will be retiring next year, and current COO Jim Rechtin will succeed him. However, Gottlieb is unsure of what the buying price would be if a deal were to happen.
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The rumors come a few weeks after Reuters reported that Bloomfield, Connecticut-based Cigna is exploring selling its Medicare Advantage business. Louisville, Kentucky-based Humana, meanwhile, is mostly known for its MA business, and also offers Medicaid. In February, Humana announced its exit from the commercial market, an area that Cigna has a strong footing in. In addition, Cigna has a large footprint in the pharmacy benefits space with Express Scripts, which has the second-largest PBM market share, according to Drug Channels. Humana, meanwhile, has the PBM with the fourth largest market share called Humana Pharmacy Solutions. Cigna has about 18 million members, while Humana has about 17 million.
The companies’ assets are largely complementary to one another, according to Gottlieb. He added that Cigna’s rumored plan to sell its MA business is likely a path to help get the deal with Humana approved by regulators.
“There’s no reason Cigna would sell MA unless they were trying to do something bigger in MA somewhere else. … It’s a pre-deal concession to regulators to say, ‘Look you can’t challenge this now because we don’t have MA and they don’t have any commercial. We don’t have Medicaid. So where’s the anti-competitive monopoly consolidation here?’” Gottlieb said.
Gottlieb’s comments were echoed by another industry expert and former employee of both insurers.
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“With Humana jettisoning its commercial business and Cigna getting rid of its existing Medicare business, the companies would make the case to federal and state regulators that the combined company would not decrease competition in either the MA or commercial insurance businesses,” said Wendell Potter in his blog called Health Care Un-covered.
Still, Gottlieb anticipates some pushback from regulators. The deal would have to be reviewed and approved in each state the insurers operate in, he said. The fact that both companies have a PBM could also make it difficult for the deal to go through, according to the Wall Street Journal. In fact, the Federal Trade Commission is investigating top PBMs, including Cigna and Humana’s, for allegedly anti-competitive practices.
Gottlieb added that he expects a limited effect on members if the two companies join forces. He said the deal could give the combined company more negotiating leverage with providers, which could drive down costs for customers.
Another deal that could make sense for Cigna is an acquisition of Centene or Molina, which both have a decent footprint in MA and Medicaid, Gottlieb said. Potter also stated this, but noted that “Humana would be the better prize.”
Humana declined to comment, while Cigna did not return a request for comment.
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