Cigna and Humana Pose a Potential Merger

In what could be a game-changing consolidation for the U.S. healthcare sector, two industry leaders, Humana and Cigna, are currently in talks for a potential merger. If the deal goes through, it could be one of the most significant developments of this magnitude. Both of these companies have massive market values, with Humana at approximately $62 billion and Cigna around $83 billion. Neither company, however, has commented on the potential merger.

At the core of the deal is a possible cash-and-stock transaction that could be wrapped up by the end of the year. However, concrete financial details about the potential deal aren’t yet available. This move would create a combined entity that could stand shoulder to shoulder with industry leaders UnitedHealth Group and CVS Health.

The potential merger of Cigna and Humana surges in the wake of these healthcare firms wrestling with increased medical costs owing to the pandemic and pressure on reimbursement from the U.S. government. To add to this, Humana had announced plans early this year to sell its commercial operation but retain its Medicare Advantage products, with Cigna considering a similar strategy.

The U.S. health insurance industry has witnessed similar consolidation deals in the past, triggered by the introduction of the Affordable Care Act in 2010. However, the grander deals were halted due to antitrust disputes. Antitrust experts suggest that the divestment of overlapping businesses could reduce the antitrust risk. Analysts are also watching how the potential merger could impact pharmacies and suppliers as these giants control significant pharmacy drug benefit management operations.

Following recent rumors, Cigna is reportedly considering selling its Medicare Advantage business, which handles public health insurance for those 65 and older. Some analysts suggest this might be in preparation for the potential merger with Humana, such as to ease antitrust concerns, as stated by healthcare stock analyst Scott Fidel.

“We would see this action being one component of a potential pursuit of Humana as an acquisition target, with the divestiture being a proactive move to reduce antitrust risk.”

Scott Fidel, stock analyst, via CNBC

The merger talks have affected the share prices of both companies. Cigna saw a nearly 8% dip, while Humana’s stock fell by over 5%.