Health insurers join the M&A action

 - Insurance Premium Hikes

And they’re off! The largest health insurance companies in the United States are racing to become even larger by merging with smaller rivals, according to an article published today in the Wall Street Journal.

According to the newspaper’s sources, UnitedHealth Group Inc. recently made a preliminary takeover approach to Aetna Inc. The deal is expected to be at least $42 billion, Aetna's market value, though numbers have not been made public. In addition, Anthem Inc. reportedly has been working on a deal to buy Cigna for approximately $45 billion.

On top of those deals, Aetna—yes, the same Aetna that UnitedHealth is attempting to buy—has been rumored to be considering a purchase of Humana Inc. Humana’s Medicare Advantage program makes the company desirable to other insurers, but Aetna may be the only one with a true chance of a successfully purchase. Some sources quoted in the article believe Anthem and Humana couldn’t merge due to overlapping commercial businesses, and a deal between UnitedHealth ($130.5 billion in 2014 revenue) and Humana ($48.5 billion in 2014 revenue) could result in antitrust concerns.

ACA-fueled growth in the individual insurance market and the need for negotiating clout with in the hospital market were cited as reasons for the increased merger and acquisition actitivy. Hospitals—and radiology practices—have been going through their own increased M &A in the past year. As the article pointed out, insurance companies are hoping to update their contracts with providers to include, “no forms of payment—arrangements that hospital systems aren’t likely to entertain unless an insurer covers a lot of their patients.”

Anticipated for some time, the current deal-making in the inusrance market likely was triggered by Humana's search for a buyer, reported by the WSJ in May. "In industries like health insurance where there are only a limited number of cominations that regulators are likely to allow, mergers are often like a game of musical chairs, with companies rushing to strike deals that will keep them from being left behind.