Health and Healthcare

Are There More Insurance Giant Merger Risks?

Jon C. Ogg

Published: May 23, 2016 12:35 pm

Last Updated: January 13, 2020 7:41 am

Many investors, and the millions of insured Americans, are concerned about insurance premiums. After all, “Affordable Care” hasn’t proved to be that affordable for many people who already had insurance and have had to adapt to the new price hikes. That puts the major insurance mergers under focus.

Leerink issued a report telegraphing that mergers might be more at risk and that one is more likely to close. There was a greater risk seen here in the Anthem Inc. (NYSE: ANTM) and Cigna Corp. (NYSE: CI) merger than that of Aetna Inc. (NYSE: AET) and Humana Inc. (NYSE: HUM).

Leerink hosted a one-day policy roundtable on May 20 in New York City to discuss issues around health care and how they pertain to major insurance mergers. One topic covered was the future of drug reimbursement and reform, as was the future competitive landscape for managed care, hospitals and health systems with respect to consolidation and stand-alone versus integrated pharmacy benefit managers (PBMs). Another issue was the policy outlook for public exchanges and for Medicare and Medicaid.

After the panel event, Leerink lowered its expectations that the Anthem and Cigna merger will close. Those expectations just dropped from 70% to under 50%. As such, Anthem’s price target was cut to $160 from $195 and Cigna’s target price was cut to $155 from $175.

Leerink’s panelists pointed to meaningful opposition from Fortune 500 employer customers. The firm remained positive on Aetna and Humana as anti-trust scrutiny continues to progress. The report said:

The companies were described as not having made a strong case for how they could lower premiums, through the improved medical and administrative cost structure in the Commercial market. The deal was viewed as being too complex with significant challenges in addressing the overlap in the National Account market through divestiture of large Employer accounts. The President of the NFP Blue brought up another hurdle to deal close given the Blue Card program is likely to be challenged by the rules of the Blue Cross Blue Shield Association when CI competes with the not-for-profit Blues on their own turf.

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