Humana Said to Pursue Sale as Supreme Court Ruling Gives Insurers a Lift
A
new round of consolidation in the health insurance industry appeared
closer as companies seek to grow larger, driven in part by cost-cutting
and opportunities that are part of the Affordable Care Act.
In the latest jockeying, Humana,
the smallest of the big five insurers, is pursuing a deal to sell
itself and could reach an agreement by next week, according to a person
briefed on the matter, who spoke on the condition of anonymity. Among
those in the running to buy it are two bigger competitors, Aetna and
Cigna.
The machinations of Humana — set against a backdrop of frenzied merger discussions within the insurance industry — received an extra jolt from the Supreme Court’s ruling on Thursday that the government could furnish tax subsidies for poor and middle-class Americans to buy health insurance.
The
long-awaited ruling, in the case King v. Burwell, was a major victory
for the Obama administration that will greatly benefit large parts of
the American health care system. Insurers, especially, had been counting
on those billions of dollars in tax subsidies to draw in new customers,
particularly as Medicare and Medicaid
turn to private health plans to offer coverage. Many insurers,
including Humana, issued statements in support of the court’s decision.
Investors,
too, were heartened by the ruling as shares in the major health
insurers jumped on Thursday after the Supreme Court announced its
decision. Trading in Humana’s stock was briefly halted and its price
gained more momentum after Bloomberg News reported that it was near a deal to sell itself.
Still,
it remains to be seen whether government regulators will bless too many
consolidations, because of antitrust concerns. And it is unclear what
effect more mergers will have on the prices consumers pay for insurance.
Other
parts of the American health care sector were also bolstered by the
ruling, particularly hospitals, which are expected to benefit from an
increase in paying customers who now are covered by Medicaid
or subsidized private insurance. Shares in HCA Holdings, the huge
hospital operator, rose nearly 9 percent, while those of Tenet
Healthcare jumped 12 percent.
Affirmation
for a signature feature of the Affordable Care Act will make firm for
some time the ability of insurers to move into new markets. Yet insurers
have also faced pressure to cut their costs, especially since these new
customers are more sensitive to the price of health coverage.
That has propelled merger talks within
the health insurance industry of an intensity unseen for the last
several years, as companies vie to find the right partner and the kind
of scale that will enable them to reduce costs and gain more negotiating
power with health systems.
Insurers
are also seeking deals with a sense of urgency, lest they risk being
left out if government regulators limit the number of mergers that will
be allowed to happen.
Already, Anthem has offered $47 billion to acquire Cigna, a deal that Cigna has rebuffed,
potentially with an eye to buying Humana. Anthem itself had also
expressed interest in buying Humana, though it is now focused on Cigna.
And
UnitedHealthcare, the biggest of the health insurers, has made a
preliminary approach for Aetna, people briefed on the matter said
previously.
Humana, based in Louisville, Ky., is seen as attractive because of its big presence in the Medicare
market, which has benefited from the Affordable Care Act. Aetna, Anthem
and Cigna all have relatively smaller Medicare Advantage businesses.
But
Humana has struggled to meet Wall Street’s profit expectations for much
of the last year, though it enjoyed rises in both its membership rolls
and its revenue in the first three months of the year.
The company has been working with bankers
at Goldman Sachs to sift through its potential deal options, fielding
expressions of takeover interest from a number of suitors.
While
Humana is perhaps the least expensive takeover target within the big
five insurers, with a market value of $27.6 billion, it faces a few
distinct issues.
Among
them is that its rival with the biggest financial resources to pursue a
transaction, UnitedHealthcare, would most likely be barred by
government regulators because both companies have major operations tied
to Medicare.
With
UnitedHealthcare and Anthem both pursuing two of the most logical
buyers of Humana, the smallest insurer risked being left alone — and
competing against far bigger rivals — if it did not strike its own deal
ahead of other potential transactions.
Representatives for Humana, Aetna and Cigna were not immediately available for comment.
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