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On Friday, 03 July, U.S.-based healthcare insurer, Aetna (NYSE:AET), announced that it would be acquiring all outstanding shares in Humana (NYSE:HUM) at $230 per share for a total of $37 billion. Human shares closed at $187.50 on Thursday, 02 July. U.S. markets were closed on Friday. Humana shares are up over 2% today, currently at 191.50.
Aetna is one of the nation’s leading diversified health care benefits companies, serving an estimated 46 million people. Aetna offers a broad range of traditional, voluntary and consumer-directed health insurance products and related services, including medical, pharmacy, dental, behavioral health, group life and disability plans, and medical management capabilities, Medicaid health care management services, workers’ compensation administrative services and health information technology products and services.
Humana Inc. is a leading health and well-being company focused coordinated care delivery. Human is the provider of the Humana Walmart Prescription Plan.
Simply put, both are healthcare plan providers of one type or another. Humana is an HMO, or Health Maintenance Organization, that provides “in-system” healthcare to its members.
According to the New York Times and others, this acquisition is merely the first ripple in what is going to be a major trend in U.S. healthcare alliances that will generate a new wave of uncertainty among investors and competing providers. Aetna Chairman and CEO, Mark T. Bertolini, who will continue in those positions in the new company, has warned that, “[Companies] who do not invest significantly in health care reform and a retail marketplace are going to struggle.”
He has indicated, and rightly so, that “Smaller companies will have a harder time accomplishing the transition.” The transition of which he speaks is the re-positioning needed to compete against “a new species of insurers – the consumer-oriented co-op plans spawned by the Affordable Care Act, better known as Obamacare.
One of the potential retail companies that could suffer as a result of the Aetna/Humana merger is the CVS Health Corporation (NYSE:CVS) that announced last month that it would acquire all of the Target (NYSE:TGT) in-store pharmacies. (See ADVFN’s “CVS Set to Acquire Target In-store Pharmacies.“) that acquisition was forged, in part, to create increased pharmaceutical buying power for the target stores. CVS’s power is, also in part, related to its contract with Aetna as a pharmacy benefit management (PBM) service. That contract is set to end in 2019.
Meanwhile, other companies are moving behind the scenes to bolster their positions. Anthem (NYSE:ANTM) and Cigna (NYSE:CI) had each expressed their own interest in acquiring Humana. There is the potential that they might be in a congenial merger mode. Muddying the waters even further, UnitedHealth Group (NYSE:UNH), the largest U.S. health insurer, could make some moves to retain its position as number one, which would be usurped by a Cigna/Anthem merger.
One thing is certain. The U.S. healthcare system is going to look a lot different by 2020 as companies in the sector fight for position and strength as Obamacare continues to disrupt the industry.
Image courtesy of Baitong333 at FreeDigitalPhotos.net
