Anthem-Cigna deal would create largest U.S. health insurer

Anthem is buying rival Cigna for $48 billion in a deal that would create the nation’s largest health insurer by enrollment, covering about 53 million U.S patients.

In just three weeks, starting July 3 with Aetna’s $35 billion bid for Humana, the healthcare landscape has been altered in a buyout frenzy that could transform five massive companies into just three, including UnitedHealth Group.

Larger insurers have negotiating power to squeeze better rates from drug companies and healthcare providers. But the wave of consolidation could lead to fewer choices for consumers in certain markets. Regulators scrutinizing the two megadeals will assess whether the combined companies would have so much power that they could dominate markets and drive healthcare costs even higher.

Employer-sponsored health insurance is growing slowly, and with the recent overhaul of the healthcare system, providers are jostling for the largest share of the millions of people who have signed up.

The deal announced Friday is valued at $54.2 billion, including debt. Shareholders of Cigna, based in Bloomfield, Conn., would receive $103.40 per share in cash and 0.5152 share of Anthem stock for each of their shares. The companies put the total value at $188 per share.

Anthem CEO Joseph Swedish said during a teleconference Friday that the combined company would “advance affordability, choice, access and quality.”

But the merger’s impact will take time to be felt by consumers, because insurers have already finalized most plans for coverage that starts in January.

‘Seriously scrutinized’

For now, industry experts say the two companies have relatively little overlap at the local level, where healthcare costs are set.

“What they do is create more capable organizations that can spread fixed costs across a wider group of people and ultimately, if they can do that, they can really improve healthcare,” said Dan Mendelson, CEO of the consulting firm Avalere Health. “And the reason why it doesn’t hurt things competitively is because at the local market, you’re not creating consolidation to a problematic extent.”

But some lawmakers said the proposed mergers in health insurance raise serious consumer concerns, and they urged an extensive review by regulators.

“These mergers must be seriously scrutinized to ensure that consumers and healthcare providers are protected from megainsurer market power abuse,” said Sen. Richard Blumenthal, D-Conn.

Anthem’s combination with Cigna would create a much broader base over which to spread costs and expenses, and the technology investments it makes would be extended over the industry’s biggest customer pool.

Anthem has said that a deal with Cigna would help build Medicare Advantage enrollment in states like Texas and Florida. Medicare Advantage plans are privately run, fast-growing versions of the federally funded program for people over 65 and the disabled.

Anthem, based in Indianapolis, is the nation’s second-largest health insurer, while Cigna ranks fourth in enrollment. Anthem specializes in selling individual coverage and insurance to workers at small businesses. It has also increased its government business.

Health insurance is Cigna’s main business, but it also sells group disability and life coverage in the U.S., and it has a growing international segment that Anthem lacks. Much of Cigna’s health insurance business involves coverage where the employer pays the claims and then hires Cigna to administer the plan.

The deal is targeted to close in the second half of 2016.

This story was originally published July 24, 2015 at 4:30 PM with the headline "Anthem-Cigna deal would create largest U.S. health insurer."