The move is a strong strategic fit, but whether it will pass antitrust scrutiny is unclear.
A significant merger could be in the works between Cigna and Humana that would combine the payers into a force large enough to challenge its biggest rivals.
News of a stock-and-cash deal that could be finalized by the end of this year was reported by the Wall Street Journal, setting up a potential antitrust showdown with regulators. While the lack of overlap between the two payers' insurance businesses makes it more of a vertical consolidation and increases the chances of the merger passing, the pharmacy benefit manager (PBM) aspect of the deal could be a major sticking point.
Though Cigna and Humana are among the largest insurers in the country, their respective of areas of focus differs. Humana's bread and butter is Medicare Advantage (MA), in which its membership and market share are second only to UnitedHealthcare's, whereas Cigna has a much smaller footprint in MA and was already reportedly considering shedding that part of its business. The MA goldmine has begun to dry up with the reimbursement model changing and star rating system methodology shifting, leading to lower bonus payments.
Humana, meanwhile, is withdrawing from the commercial market to turn its full attention to its core lines of Medicare and Medicaid. By the time a merger with Cigna is completed, Humana could be completely out of selling employer group commercial medical products.
Due to the opposing directions the two payers have taken, the merger would not only be a hand-in-glove strategic fit by filling the gaps for each side, but it would also make a substantial argument for not infringing anticompetitive practices.
Regulators are more likely to view the deal as a vertical integration than a horizontal one, which increases the likelihood of the merger getting through. Horizontal deals have especially drawn the ire of the Federal Trade Commission (FTC) because of hospitals and payers strengthening their hold in business lines they already command a strong presence.
Cigna and Humana had previously discussed a merger in 2015, but that fell through before the latter reached a deal with Aetna that was blocked for violating antitrust laws. Cigna then agreed to a deal with Anthem, now known as Elevance Health, which also died due to an antirust ruling.
Aetna was later acquired by CVS Health in 2018 and allowed to pass because it was also considered more vertical. Cigna and Humana will hope that their deal will be seen in a similar vein.
Where the deal can be seen as causing antitrust issues is on the PBM side, where Cigna is one of the biggest players in the industry due to its ownerships of Express Scripts, which it acquired in 2018. Folding in Humana's pharmacy assets would give the combination an even greater market share and PBMs are already heavily scrutinized by regulators.
With regulators seemingly looking for any and every reason to put mergers and acquisitions in the healthcare space under the microscope right now, the PBM aspect of the deal may be the reason it falls apart.
If the deal passes, Cigna CEO David Cordani could be at the helm of the merging companies with Humana in the middle of a succession plan that will see Jim Rechtin take the reins from Bruce Broussard in the latter half of 2024.
Jay Asser is the contributing editor for strategy at HealthLeaders.
KEY TAKEAWAYS
Humana and Cigna are reportedly in talks to merge, which would create a well-rounded company with a presence in multiple business lines.
While Humana has exited the commercial insurance market and focused its attention on Medicare Advantage (MA), Cigna is considering selling off its MA business.
However, the pharmacy benefit manager (PBM) side of the merger, which would strengthen the hold Cigna already has, could be what regulators attack.