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Talk of possible Aetna, Anthem acquisitions reaches fever pitch


It's time to play "Let's Make a Deal." Or, perhaps, "The Price Is Right." Also, "Who Wants to Be a Millionaire?"

In case you missed the news--and, judging from the contents of the Most Read box on the FierceHealthPayer site, you haven't--Aetna and Anthem appear ready, willing and able to make an acquisition.

Both insurers, flush with cash after another successful quarter, nonetheless see a gap in their offerings that only an acquisition can fill: Medicare Advantage.

Aetna and Anthem focus largely on employer-sponsored health plans. Some prognosticators expected the Affordable Care Act to kill these plans, with workers flocking en masse to public and private exchanges to buy plans better suited to their insurance needs.

That hasn't happened. Most ACA enrollees came from the ranks of the uninsured. So far, employer-sponsored plans have held strong. Over time, though, that may change, as firms small and large increasingly find healthcare benefits too burdensome and costly to manage. Like an aging rock star, employer-sponsored insurance won't burn out, but it may fade away.

Consumers, also like aging rock stars, are getting older. Medicare enrollment is projected to hit 30 million by 2025, according to the Congressional Budget Office--and that number may grow even more, as seniors increasingly prefer Medicare Advantage plans to Medicare itself.

You don't need an MBA to see what this means. Insurers with Medicare Advantage customers are a hot commodity. That's why Cigna and Humana are the primary targets of Aetna and Anthem.

Investment analysts peg Cigna's market cap at $34.3 billion and Humana's at $26.7 billion. These compare to roughly $40 billion for Aetna and $43.3 billion for Anthem.

The situation begs several questions.

  • Who will bite first? The Aetna rumors came first, but Aetna, Cigna and Humana have yet to say anything. Meanwhile, Anthem's CFO said the time is right. Frankly, it's anyone's guess.
  • Who will bite second? Will the Big Five become a Big Four, or even a Big Three? Will UnitedHealth (market cap exceeding $115 billion) feel a need to enter the fray?
  • How will the rest of the industry respond? Will providers rush to renegotiate contracts with newer, larger insurers--or, frustration with insurers near its tipping point, will they start their own health plans, in an effort to become the next Kaiser?
  • How would such market upheaval affect employees and consumers?

Of course, there could be snags. Analysts suggest that Humana may be overvalued, which would mean now is not the time to buy. Cigna may be too pricey for an outright acquisition--in which case, Aetna and Anthem may opt for smaller Medicaid providers such as Centene, Health Net, Molina Healthcare or WellCare, which range in market cap from $3.5 billion to $8.3 billion, Reuters noted. Next month's King v. Burwell ruling may force everyone to put their plans on hold, reset their 2016 rates and ponder their place in the world.

It's worth pointing out that this is all just speculation. The recent words of Anthem Chief Financial Officer Wayne DeVeydt--who said the company sees itself in a position to make a "transaction of meaningful size," according to Reuters--is about as much as we can expect anyone to say. Whether "meaningful" means a few billion or a couple dozen billion is anyone's guess.

Earlier this spring, on the first day of the baseball season, I said that deal-making payers are already in midseason form. If that's the case, the industry now finds itself on the brink of the playoffs.

In this game of "Let's Make a Deal," though, there's much more at stake than a pennant. - Brian (@Brian_Eastwood and @HealthPayer

Related Articles:
Anthem may be ready to make an acquisition
Aetna poised to make an offer for Cigna, Humana
Humana's stock prices could thwart Aetna deal
Providers continue to distrust insurers
Booming Medicare business could make Humana an acquisition target
Study: Most Medicare Advantage members come from Medicare