Aetna’s Medi­care busi­ness would swell with Hu­mana pur­chase

Modern Healthcare - - LATE NEWS -

Aetna has signed a nearly $35 bil­lion deal to buy ri­val Hu­mana, which would dra­mat­i­cally ex­pand its Medi­care Ad­van­tage busi­ness.

The pro­posed cash-and-stock deal, an­nounced Fri­day, would give Aetna con­trol of Louisville-based Hu­mana’s big Ad­van­tage busi­ness. Pri­vately run Ad­van­tage plans have signed up about 30% of the Medi­care pop­u­la­tion, and that’s ex­pected to keep grow­ing as baby boomers age into Medi­care.

Hu­mana has nearly 3.2 mil­lion peo­ple en­rolled in Ad­van­tage plans, a lit­tle less than mar­ket leader Unit­edHealth Group Inc.

The com­bi­na­tion also would bol­ster Aetna’s pres­ence in the Med­i­caid pro­gram and Tri­care cov­er­age for mil­i­tary per­son­nel and their fam­i­lies. In ad­di­tion, it would give the in­surer stronger lever­age in ne­go­ti­at­ing rates with healthcare providers and drug­mak­ers.

“By get­ting larger, (in­sur­ers) have the abil­ity to fight back on some of these price in­creases,” Jeffrey Loo, eq­uity an­a­lyst at S&P Cap­i­tal IQ, said last month. “They could also cut out a bunch of ad­min­is­tra­tive costs and grow their mar­gins.”

The deal value to­tals about $37 bil­lion count­ing debt.

Aetna, An­them, Cigna Corp. and Unit­edHealth Group have been in­volved in in­tense merger dis­cus­sions in re­cent weeks. An­them went public in May with an of­fer of more than $47 bil­lion for Cigna, which re­jected that deal. The two com­pa­nies re­port­edly were still talk­ing last week.

Many of the ru­mored tie-ups would face sig­nif­i­cant ex­ter­nal and in­ter­nal hur­dles, in­clud­ing tough an­titrust scru­tiny.

Hart­ford, Conn.-based Aetna an­nounced its deal a day af­ter the Med­i­caid man­aged care com­pany Cen­tene said it will spend $6.3 bil­lion to buy Health Net. That deal would help Cen­tene ex­pand in Cal­i­for­nia and give it a Medi­care pres­ence in sev­eral western states.

“Gov­ern­ment mar­kets are the most rapidly grow­ing as­pect of the (in­sur­ance) sys­tem,” said Dan Men­del­son, CEO of the mar­ket re­search firm Avalere Health.

Fri­day’s deal comes two years af­ter Aetna com­pleted another push into Medi­care and Med­i­caid busi­ness with the $6.9 bil­lion ac­qui­si­tion of Coven­try Health Care.

The pro­posed deals of­fer an in­fu­sion of new busi­ness at time when growth has slowed in em­ploy­er­spon­sored plans. More em­ploy­ers are self-in­sur­ing and hir­ing in­sur­ers to ad­min­is­ter the cov­er­age, a less lu­cra­tive line of busi­ness.

In­sur­ance an­a­lysts say merg­ers al­low com­pa­nies to quickly di­ver­sify their prod­ucts, cover more ter­ri­tory, im­prove their tech­nol­ogy, re­duce costs, and gain greater bar­gain­ing clout with providers and sup­pli­ers.

But some observers warn that these merg­ers could lead to higher premi­ums and less choice for em­ploy­ers and con­sumers.

Aetna’s pur­chase price for Hu­mana in­cludes a com­bi­na­tion of cash and stock worth about $230 per share, based on the clos­ing price of Aetna’s stock on Thurs­day. Aetna share­hold­ers would wind up own­ing about 74 per­cent of the com­bined com­pany. Aetna’s leader, Mark Ber­tolini, would serve as chair­man and CEO.

The com­bined com­pany would cover more than 33 mil­lion peo­ple. Only Unit­edHealth Group and An­them cover more. A com­bined Aetna-Hu­mana would be the sec­ond-largest in­surer by rev­enue.

Shares of Aetna and Hu­mana closed at $125.51 and $187.50, re­spec­tively on Thurs­day. Mar­kets were closed Fri­day.

The shares of both com­pa­nies, like sev­eral other in­sur­ers, have soared to all-time-high prices this year. The price of Hu­mana shares, in par­tic­u­lar, bolted past $200 in May af­ter it was re­ported Hu­mana was a takeover tar­get.

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