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Proposed Aetna-Humana merger expected to spur more consolidations

Posted On: Jul. 8, 2015 12:00 AM CST

The proposed merger between Aetna Inc. and Humana Inc. all but assures further consolidation within the health insurance industry, experts say.

If completed, the $37 billion deal would create the second-largest U.S. health insurer by total membership and revenue, a prospect that experts said this week puts added pressure on other insurers to merge in an effort to remain competitive.

Cigna previously rejected a $47 billion acquisition offer from Anthem, and had been rumored to be interested in acquiring Humana.

“We now see an Anthem/Cigna deal as much more probable, given the attractive deal multiple with a modest increase in offer price, along with some governance concessions for Cigna,” said Ana Gupte, managing director at Leerink Partners L.L.C., in a report published shortly after Aetna's merger announcement. “We see the evolution of large, diversified insurers forming a more efficient 'Big 3' just one step away, with UnitedHealth Group Inc. being the third major player.”

In another deal last week, St. Louis-based Centene Corp. agreed to buy rival Woodlands Hills, California-based Health Net Inc. for $6.3 billion.

Experts said further consolidation among health insurers would likely provide the industry with an opportunity to recalibrate the balance of their purchasing leverage with hospitals, physician groups and other health care providers, as well as pharmaceutical companies and other third-party vendors.

However, a smaller field of companies in the health insurance market also carries the risk of dampening competition and stifling innovation, experts said.

“It really bears watching, because at what point does insurer consolidation reach a tipping point where the potential downside outweighs the opportunities,” said Brian Marcotte, president and CEO of the Washington-based National Business Group on Health. “As we look at the other potential deals that are being discussed in the market, you have to wonder how many companies we're going to get down to.”

Experts also expressed concern about the near-term effect further consolidation among insurers would have on the industry's ability to deliver innovative solutions to its various consumer segments.

“When you bring these large insurers together, the question is whether there's going to be continued focus on innovation, or if the companies' focus will be on integration and driving synergies,” said Tucker Sharp, global chief broking officer for health at Aon Hewitt in Somerset, New Jersey. “I think it's clear that at least in the early days, these companies are going to have to focus on integration more than they do innovation.”