Recently we learned that the Department of Justice, nine additional states (more to follow), and the District of Columbia, have moved to block two behemoth acquisitions in the healthcare insurance industry: The purchase of Humana by Aetna, and Cigna by Anthem. These two colossal unions would certainly change the landscape of healthcare delivery in the US; good, bad, or indifferent. As with most situations, there are pros as well as cons.
Here are the basic facts:
Aetna has offered a purchase price of Humana for $37 Billion
Anthem of Cigna for $48 Billion
Having worked for more than a decade for major medical carriers, M&A rumors are common among major healthcare carriers. Potential acquisition conversations were, and continue to be, a common theme of discussion at all levels amongst carrier employees. Take Aetna/Humana for example. This union has been rumored for more than 15 years now, and that’s just my personal experience on the topic. It is true now that the two mega-carriers are closer than they have ever been to inking a deal, but the jury is still out on whether they will be allowed.
In an effort to put things in perspective, let’s look briefly at both potential takeovers and how they will impact the PEO community if consummated:
Aetna and Humana:
By far these are the two most dominant players in the PEO space. This union would limit competition with certainty, however, the merger would also result in a combination of PEO best practices from an underwriting perspective, while dramatically enhancing network access, particularly for Humana.
Anthem and CIGNA:
As is pertains to writing PEOs, CIGNA is perhaps the most conservative, whereas Anthem has a dominant name with PEOs in specific markets such as California. Anthem isn’t in every market, like Florida for example, while CIGNA is in most. In my home state of Florida, CIGNA is a major player however doesn’t pursue PEO business. An Anthem acquisition of CIGNA could very well open conversations on master policies for FL based PEOs, as well as other markets which would increase capacity overall.
In any given geographical market (pick your city), you will find strong carrier positions, and weak ones amongst the major health insurance carriers. This is predominantly driven by discount positions, sales force presence, and network. So for example, let’s look at Dallas. Due to size, and the fact that it’s Dallas, one might think that 100% of the major carriers would be well positioned there, and one would be disappointed to find that not to be the case. Dallas is dominated by Blue Cross and Blue Shield of Texas, and United Healthcare representing just one example of market inconsistency among countless others. In the US, we have five major healthcare carriers each having different focal points and strengths. The Department of Justice and others are blocking these two acquisitions due to the effect they will have on competition in the marketplace. Taking five carriers to three, while keeping in consideration the example of Dallas, could very well leave the marketplace, in many areas, with one or two viable options for businesses regarding carrier choice for healthcare. It’s for that primary reason that myself, and many others, support the direction of the DOJ and multiple states to disallow both transactions.
In the current sea of uncertainty on the topic, there remains one constant regardless of the outcome(s) of these transactions. The PEO market will continue to grow, and we, as advisors to the industry, will make any and all needed adjustments to ensure our ability to deliver creative risk management solutions to the market.
James F. Hughes
Libertate Insurance, LLC
C – 813.335.1588
O – 407.613.5475