Aetna Inc. is nearing a deal to buy Humana Inc., according to
people familiar with the matter, in a tie-up of health insurers
that could be announced this week.
The people said a deal could be inked as soon as Thursday night,
though they cautioned the timing could slip.
With Humana's market value at $28.9 billion as of Thursday's
market close, a takeover of the Louisville, Ky. insurer would mark
the latest megamerger in a year on track to reach historic M&A
volumes.
A takeover approach for Humana earlier this year thrust the
biggest health-insurance companies into a five-way merger frenzy.
Cigna Corp. and Aetna were vying to buy Humana, while trying to
rebuff takeover approaches of their own. Cigna has been in talks
with Anthem Inc., and UnitedHealth Group Inc. earlier approached
Aetna.
A deal to buy Humana would vault Aetna toward the top of the
burgeoning Medicare business and give it scale to thrive as the
industry consolidates.
But expected scrutiny from antitrust regulators, along with
signs of some emerging operational challenges at Humana, will put
pressure on Aetna and its chief executive, Mark Bertolini, to
demonstrate that the big bet will pay off.
In picking up Humana, Aetna would get a unique asset—a company
with a rapidly growing Medicare enrollment that totals 3.2 million.
This, combined with Aetna's Medicare membership of 1.26 million,
would likely put the merged company close to current industry
leader UnitedHealth.
The Medicare business is considered a growth engine for the
industry, as baby boomers age into eligibility and choose the
private-insurer version of the government program, known as
Medicare Advantage plans.
Humana performs strongly in a key measure of Medicare quality
known as star ratings, which are tied to government payments. The
insurer has been moving rapidly to forge close ties with doctors
and other providers in efforts to boost performance and rein in
costs.
Humana is also a leading provider of Medicare drug benefits,
known as Part D plans, with 18% of that market, according to a
tally by Wells Fargo Securities.
A deal would have particularly high stakes for the federal
government because of Humana's key role in Medicare and its
significant footprint in the health law's insurance exchanges.
A Wall Street Journal analysis found that an Aetna-Humana tie-up
would increase by about 180 the number of U.S. counties where at
least 75% of customers for Medicare Advantage plans are in the
hands of a single insurer. In eight states, an Aetna-Humana merger
would remove a competitor from the exchanges in which individuals
can buy coverage under the Affordable Care Act, though insurers may
not offer plans in every region of a state.
Goldman Sachs health-insurance analysts, looking at potential
market-concentration issues, estimated that around 13% of the
combined Medicare Advantage enrollment of a combined Aetna-Humana
could be at risk of divestiture if the two companies sought to
merge. The analysts estimated the figure at around 18% of the
combined individual-insurance business and 16% of small-group plan
enrollment, though some states were excluded from those
tallies.
Write to Liz Hoffman at liz.hoffman@wsj.com and Dana Mattioli at
dana.mattioli@wsj.com
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