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.
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 employer-sponsored 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.