Health insurer giants Cigna and Humana are in merger talks, according a range of news media reports that began breaking on Wednesday afternoon, Nov. 29. As Reuters’ Anirban Sen and Deena Beasley reported on Wednesday afternoon, “U.S. health insurer Cigna (CI.N) is in talks to merge with peer Humana (HUM.N), a source familiar with the matter said on Wednesday, a deal that could exceed $60 billion in value and would be certain to attract fierce antitrust scrutiny. The discussions come six years after regulators blocked mega-deals that would have consolidated the U.S. health insurance sector. After U.S. courts upheld antitrust challenges in 2017, Cigna gave up on a $48 billion deal to acquire Anthem -- now known as Elevance Health. Losing the legal battle also caused Aetna -- now owned by pharmacy chain operator CVS Health (CVS.N) -- to abandon a $37 billion deal to acquire Humana.”
The first mainstream media report came from Lauren Thomas, Anna Wilde Mathews, and Laura Cooper, who broke the story in The Wall Street Journal at 4:28 PM eastern time on Wednesday. Citing people familiar with the matter, they reported that Cigna and Humana are discussing an all-cash deal that would be finalized by the end of 2023, according to the report. Cigna carries an $83 billion market value and Humana's market value is $62 billion, allowing a combined entity to rival the largest players in this space: UnitedHealth Group and CVS Health, they noted. And they noted that the deal would give Cigna, and its massive pharmacy benefit manager Express Scripts, a much larger foothold in the hot Medicare Advantage market. The two insurers did discuss the potential to merge in 2015, though a deal did not come together, according to the report.
And, as Josh Nathan-Kazis and Emily Dattilo wrote in Barron’s on Wednesday, “A report earlier this month that Cigna was shedding a potentially conflicting division suggested that a deal was in the works. The Journal article has strengthened expectations that a transaction is on the way. A combined Cigna and Humana would likely be the second-largest publicly traded health insurer in the U.S., after UnitedHealth Group,” Nathan-Kazis and Datillo noted that Cigna’s market value is $83.7 billion, while Humana’s is $62.8 billion. UnitedHealth’s is $500 billion,” adding that “The two companies focus on separate ends of the health insurance market, which could provide a rationale for the merger. Humana is one of the largest sponsors of Medicare Advantage plans, a popular alternative to traditional Medicare under which the federal government pays private companies to manage the health benefits of U.S. seniors. Cigna, meanwhile, is among the largest players in the commercial insurance market. “Any deal would face close scrutiny from regulators.,” they added. “In 2017, a federal judge blocked a merger between Humana and Aetna after the Department of Justice raised antitrust concerns. The companies already appear to be preparing for potential objections.”
What’s more, they noted, “Reuters reported in early November that Cigna is looking into selling its Medicare Advantage business. Humana dominates that part of the market, so a sale would likely be needed for the deal to pass antitrust muster. Humana, meanwhile, said in February that it planned to exit the commercial insurance business. Both companies have in-house pharmacy benefit managers, which negotiate directly with drugmakers. Cigna’s pharmacy benefit manager, called Express Scripts, is one of the three largest in the U.S.”
Meanwhile, Wendell Potter, a former health insurance executive, noted in a Substack post on Nov. 28 that “Cigna and Humana, the two big insurers where I worked for nearly two decades, reportedly are in secret talks to join forces. The union–which would create a company much closer in size to UnitedHealthcare and CVS/Aetna, the fifth and sixth largest companies by revenue in America–likely would take shape as an acquisition of Humana by Cigna.”
Potter wrote that there is a natural fit to this potential combination. “Louisville, KY.-based Humana, which has been in the private Medicare business for more than 40 years and has the second-largest enrollment in Medicare Advantage plans behind UnitedHealthcare, announced earlier this year that it is getting out of the commercial health insurance businesses,” he noted, Meanwhile, “Bloomfield, CT-based Cigna, meanwhile, is looking to sell its Medicare Advantage business, according to Reuters. Most of Cigna’s health plan enrollment by far over the years has been in the employer-sponsored health insurance market. Despite acquisitions of smaller companies that specialized in Medicare Advantage–and even some of Humana’s MA business in 2013–Cigna has never been able to become more than a bit player in the Medicare space.”
And, he noted, “With Humana jettisoning its commercial business and Cigna getting rid of its existing Medicare business, the companies would make the case to federal and state regulators that the combined company would not decrease competition in either the MA or commercial insurance businesses.”
Meanwhile, James Fontanella-Khan and Ortenca Aliaj wrote on Wednesday in The Financial Times that
“The two companies have hired advisers who have been discussing a cash and stock deal for more than a month. They hope to get the transaction agreed before the end of the year, the people said. A combination between Cigna and Humana would help the companies compete with larger rivals such as UnitedHealth Group and Elevance Health, formerly known as Anthem,” they noted. “It would also mark the largest deal of the year between two companies with a combined enterprise value of about $140bn, including debt, in what has otherwise been a tepid mergers and acquisitions environment.”
