The July 3 merger announcement by Aetna and Humana, two of the country’s five largest health insurers, unsurprisingly drew blanket coverage across the media over the holiday weekend. Three questions have so far dominated the discussion: Will the $37 billion deal survive antitrust review? Will Anthem and Cigna’s rekindled talks produce the same result? And what will all this mean for healthcare consumers?
Aetna CEO Mark Bertolini told the Wall Street Journal he hopes beating Anthem and Cigna to the punch will bring an advantage when the particulars come before antitrust regulators. “Being first in creates caution for others coming in next,” he said, adding that antitrust reviews are “never totally predictable, but we believe it’s very manageable.”
The paper noted that Aetna and Humana are third and fourth in size, by revenue, among health insurance companies. The merger would give the combined entity roughly 1 million more Medicare Advantage members than UnitedHealth Group, the current largest player in the industry by that score. In total, the combined company would cover more than 33 million people, a share trailing only that of UnitedHealth and Anthem.
The WSJ additionally reported that its own projection showed an Aetna-Humana merger increasing by about 180 the number of U.S. counties where at least 75 percent of Medicare Advantage customers are in the hands of a single insurer. The article said Securities and Exchange Commission regulators have signaled that they will very closely scrutinize any combinations that could yield such broad control.
Interestingly, both sides agreed on a breakup fee should the deal go south. One would have to pay the other 3.75 percent of the deal’s enterprise vale, around $1.4 billion, if one backs out after receiving a higher bid. “Such breakup fees are commonly promised to would-be buyers like Aetna to compensate for the sting of a rival bidder stealing their prize,” the WSJ reported. “But it is unusual to see such a fee apply to both sides, which suggests Humana was protecting itself in case UnitedHealth made a play for Aetna.”
What about the patients?
Health and wellness investor and commentator Rajeev Mudumba raised the pertinent consumer-impact concerns in a blog post picked up by LinkedIn. The combined company, he pointed out, would probably satisfy both companies’ investors while also pushing healthcare providers to move faster along the road to achieving better outcomes at lower prices. “However, less competition could also lead to higher premiums, higher out-of-pocket costs and narrower networks,” wrote Mudumba.
Suggesting that intentions for the greater good may have helped fuel the move, at least partially, Mudumba noted that Bertolini recently raised the minimum wage for Aetna employees to $16 an hour, lowered workers’ out-of-pocket healthcare costs and incorporated those benefits into financial projections for current Humana employees post-merger.
A LinkedIn commenter named Nancy Yaklich, who identified herself as a “disruptive customer experience executive,” likely spoke for many skeptics and watchdogs when she countered: “Consolidation in any industry is bad for consumers. Just take a look at the airline industry—fewer flights, higher prices, poor service.”
Expect more mergers
As for further consolidation in the industry, Ana Gupte, an investment analyst at Leerink Partners of Boston and San Francisco, told Bloombeg the merger has narrowed the options—and paved the way—for Cigna and Anthem. The two were in talks for some time but called them off. They’re back on now. “Cigna has fewer choices at this point,” Gupte said.
Meanwhile, Bloomberg reported, ripple effects are already being felt. In a much smaller but still significant deal, Centene Corp., a Fortune 500 company that supplies services to government healthcare programs, has agreed to buy Health Net Inc., a publicly traded managed-care organization, for about $6.3 billion, creating the biggest private administrator of Medicaid.
Combined with Aetna-Humana, the Centene-Health Net development had the side effect of reminding healthcare watchers of the role of the Affordable Care Act—recently saved a second time by the Supreme Court—in contributing to the deal-happy atmosphere that is now evidently descending on healthcare.