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Booming Medicare business could make Humana an acquisition target

Stalled growth in employer health plans may leave Aetna, Anthem wanting

A growth in Medicare and Medicaid business could make insurers such as Humana attractive acquisition targets in the coming months, according to Bloomberg Business.

Large insurers such as Aetna and Anthem typically focus on employer-sponsored health plans, which remain strong but haven't received much of a jolt from the Affordable Care Act. Medicare and Medicaid plans, on the other hand, "have the most unit growth," Leerink Partners Ana Gupte told Bloomberg.

Health insurance has seen few merger and acquisition deals since the ACA went into effect, Bloomberg said, as payers waited to see how the law would shake out.

Three factors suggest that now might be the time:

  • The Centers for Medicare & Medicaid Services project an additional 14 million Medicare beneficiaries, plus another 9.6 million individuals on Medicaid, by 2023.
  • In addition, though health insurance stocks have never been worth more, analysts tell Bloomberg that the current valuations of Humana ($27 billion), Centene ($8.3 billion) and WellCare ($4.1 billion) may have peaked.
  • Finally, despite high share prices, big-name insurers face risks in light of the forthcoming King v. Burwell verdict and Republican challenges to the ACA, Zacks reported. Both could undo many of the recent membership gains that these payers have reaped.

There have been small deals. Witness Anthem's acquisition of Florida-based Simply Healthcare, completed last month, which saw the $42 billion insurer add about 200,000 Medicare and Medicaid beneficiaries in the Sunshine State.

But bigger deals may be on the horizon. As Anthem CFO Wayne DeVeydt told Bloomberg, "For significant scale, we may have to do something larger."

For more:
- here's the Bloomberg Business article
- read the Zacks statement
- here's the Anthem-Simply Healthcare announcement

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Health insurance growth outlook 'stable' for 2015, Fitch Ratings report says