Will Cigna buy Humana?

In this iPMI Global Insights article, iPMI report author Ian Youngman, takes a look at the possible health insurance deal between Cigna and Humana.

Ian Youngman is a writer and researcher specialising in insurance. He writes regularly for a variety of magazines, newsletters, and on-line services. He publishes a range of market reports, and undertakes research for companies. To read his latest report, International Health Insurance 2023, please click here, or visit the REPORTS section of iPMI Global.

• Cigna is in talks to buy Humana in a deal that would create a USA health insurance giant worth $140bn.
• Humana is a for-profit American health insurance company based in Kentucky.
• It is the fourth largest health insurance provider in the U.S.A.
• It is almost completely in the USA while Cigna is global.
• Humana has shed its commercial and Affordable Care Act plan businesses in the past five years and focused more on senior care.
• Humana includes a primary and home care service Centerwell, which has aggressively expanded in the past couple of years, and has more plans to grow.

Analysis

• The medial talks about a merger but in reality, it would be a takeover of Humana by Cigna.
• This is all about the USA healthcare-health insurance market where United Global Healthcare is increasingly dominant.
• Cigna and CVS-Aetna need to buy USA healthcare and insurance businesses to be big enough to compete with the behemoth.
• They tried to do a similar deal a decade ago.
• The companies have complimentary needs, with Humana a big player in government contracts such as Medicare, while Cigna is more focused on the commercial market.
• Both have strong PBM businesses.
• There have been rumours that Cigna is looking to sell its Medicare Advantage book of business.
• Cigna’s strategic rationale for this deal would be to gain exposure to faster growing government and military lines of business, particularly MA where HUM has massive market share.
• With CVS and United Healthcare operating in multiple sectors of healthcare, the vertical integration model is the new power strategy, and this would give Cigna a platform to compete in the same field.
• It will have zero effect outside the USA other than providing Cigna with a bigger base for the future.

What Next?

• Neither insurer has publicly commented.
• The two companies have each hired advisers who have been discussing a cash and stock deal for more than a month.
• A deal could take at least 12 months to get government approval,
• The merger would have major effects on the makeup of the U.S.A. health insurance industry and would almost certainly face a challenge from the Biden administration's aggressive antitrust regime.
• A federal judge ruled in 2017 that a merger between Humana and Aetna was anti-competitive, followed by a similar decision on a tie-up between Anthem and Cigna.
• Cigna could sell some existing assets to pre-empt any legal pushback from USA regulators, said one person briefed about the matter. 
• If the deal to combine Humana and Cigna went through it would still be smaller than the largest player, UnitedHealth Group, which has a market value of $500bn.
• UnitedHealth generated revenues of $322bn in 2022, while Humana and Cigna together made at $263bn. 
• A deal would also give Cigna, and its massive pharmacy benefit manager Express Scripts, a much larger foothold in the hot Medicare Advantage market.
• The Biden administration fought a plan by UnitedHealth to buy Change Healthcare for $8 billion, arguing it would give UnitedHealth access to its competitors' data and ultimately push up healthcare costs.
• The judge said efforts the companies undertook to address antitrust concerns were sufficient.
• So anti-trust blocking is far from a certainty.