Move over, Aetna-Humana.
On July 25th, 2015, Anthem & Cigna, the nation’s second and fourth largest insurers by enrollment and the second and fifth largest by revenue, have announced a $54.2 billion merger, now the largest in the history of Health Insurance. Again, a part cash and part stock deal, Anthem is to pay $188 per Cigna share, a 38.4% premium over Cigna’s share price as on May 28th, 2015. $103.40 is to be paid in cash and 0.5152 shares of Anthem stock are to be exchanged per Cigna share.
Similar to the Aetna-Humana merger announced about 3 weeks ago, this deal is targeted to close in the second half of 2016.
Anthem will own 76% of the combined company while Cigna will own 33%. Anthem CEO, Joseph Swedish will be the new Chairman and CEO of the combined company while Cigna CEO, David Cordani will be its President and COO.
The combined company is expected to have 53 million medical members – nearly 1 in every 5 insured Americans with annual revenue of $115 billion. This would make it the largest U.S. health insurer by membership, closely trailed by UnitedHealth Group, with 46 million members.
With Aetna-Humana’s combined company poised to serve 33 million members, health insurers have consolidated from being the top 5 to top 3.
Historically, Anthem has been a company created through acquisitions, which grew mostly by buying Blue Cross-Blue Shield plans in various states. One of the prized acquisitions of Anthem came in the form of Wellpoint Health Networks of California in 2004. Amerigroup, a Medicaid plan in 19 states was its most recent acquisition in 2012. Anthem is the biggest member of the Blue Cross and Blue Shield Association, which has about 36 independent insurers that collectively insure 106 million members. Anthem serves members in 26 states.
Anthem dominates the employer based insurance markets in 10 of the 14 Blue states. Anthem has about 39 million medical members of which 61% are in the self insured market and 15% in Medicaid. Group business is about 12% and Medicare Advantage, just about 1%.
Blue Cross member companies do not compete with one another, but Cigna does. However, Anthem has confirmed that the combined company will remain Blue.
Cigna operates in U.S. health, life and disability markets and has an international presence in 29 countries, primarily through expat employer benefits. Cigna has 15 million medical members. About 80% of its business is in the self-insured market. Besides employers, Cigna serves individuals and Medicare Advantage customers. Cigna also has 24 million behavioral health consumers, 14 million dental care members, 8 million pharmacy benefit plan members and 1.5 million Medicare Part D pharmacy customers.
Anthem has a major presence in the public insurance marketplaces while Cigna does not.
While Aetna-Humana deal expanded Aetna’s presence in the Medicare Advantage space, the Anthem-Cigna deal is expected to radically affect the commercial insurance market, where both the companies have dominant presence in various geographies.
Similar to the Aetna-Humana deal, this deal is also being touted as formed to consolidate operations, take advantage of technology integration, streamline costs and expenses, leverage complementary offerings and markets and finally, to leverage better costs for end consumers through the negotiation of lower prices with hospitals and providers. Initial cost savings of $2 billion were announced for the combined company.
On the other hand, lower competition with a few major players could mean more power in fewer hands, premium increases and perusal of policies in favor of their shareholders than consumers.
If history is any indication, according to a 2012 study of the 1999 merger between Aetna and Prudential, premiums increased by seven percentage points.
Now, it’s for the federal and state regulators to watch out for consumers.
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