Challenges, benefits abound with Aetna-Humana deal

Tools

Now that Aetna and Humana became the first two major health insurers to merge, many questions remain about how the two companies will combine their operations and what the deal will mean for the health insurance industry.

The two companies announced Friday that Aetna will acquire Humana in a deal valued at $37 billion that will swell Aetna's ranks of Medicare Advantage members to 4.4 million, FierceHealthPayer reported.

Such diversification, more than reducing expenses or building scale, is likely to be the main advantage of the deal, Forbes reports. Indeed, "given the market environment that we're in, diversity of membership makes a lot of sense," Stephen Zaharuk, senior vice president at Moody's Investors Service Inc. in New York, tells the publication Business Insurance. But in order for the deal to actually pay off, Aetna's main task will be to work on reducing expenses, the Wall Street Journal reports

Aetna and Humana hope that by being the first of the "Big Five" insurers to combine, they will face less regulatory resistance, Aetna CEO Mark Bertolini said Friday, according to another WSJ article. Many expect mergers between the country's largest insurers--including the Aetna-Humana deal--to face stiff antitrust scrutiny. If the deal is blocked on antitrust grounds, Aetna would owe Humana a $1 billion fee, the WSJ reports.

The deal may also have major implications for Aetna's pharmacy benefit management contract with CVS Health, which expires in 2019, another Forbes article notes. Top executives from Humana and Aetna told investors Monday that the new combined company could create the nation's fourth largest standalone pharmacy benefit manager (PBM), which would process more than 600 million prescriptions. The nation's largest for-profit insurer, UnitedHealth Group, has already moved to expand its own PBM, the article points out.

If Anthem and Cigna's tense merger talks bear fruit, UnitedHealth could find itself among three large major insurers instead of five. The existence of a new "Big Three" is likely to spur policymakers to re-examine oversight of the industry as well as prompt hospital boards to revisit their "collaborate or compete" strategies, Paul Keckley, managing director of the Navigant Center for Healthcare Research and Policy Analysis, writes in his Pulse Weekly column.

To learn more:
- here's the first WSJ article
- read the second WSJ article
- here's the first Forbes piece
- read the other Forbes piece
- here's the Business Insurance report
- check out Keckley's column

Related Articles:
Aetna acquires Humana for $37B
Merger madness continues: Aetna close to acquiring Humana
Merger madness: What takeover bids mean for the health insurance industry
How a Humana acquisition would reshape the market
The ACA's impact on insurer consolidation
Risk-sharing payments could affect future insurer mergers