Like most mergers and acquisitions, the Aetna-Humana and Anthem-Cigna deals will need a fair amount of cultural alignment to yield the market complementaries and business synergies being promised amid the record-breaking valuations.
Move over UnitedHealthcare and Aetna-Humana. If Anthem's $54.2 billion acquisition of Cigna is fully approved by regulators, the new company will be the largest insurer by membership and perhaps eventually by revenue. The company will have 53 million customers, more than United or Aetna, and $115 billion in revenue, approaching the $119 billion that United and its diversified companies generate.
Despite Cigna rejecting a previous offer by Anthem and taking some subtle jabs in the process, the companies argue that the deal will be a boon on all accounts, for all involved, including health insurance customers.
"The Cigna team has built a set of capabilities that greatly complement our own offerings and the combined company will have a competitive presence across commercial, government, international and specialty segments," said Joseph Swedish, Anthem president and CEO and the proposed chair and CEO of the new company.
"Our new company will deliver an acceleration of innovative and affordable health and protection benefits solutions," said David Cordani, Cigna's president and CEO and the new insurer's proposed president and chief operating officer. "The complementary nature of our businesses will allow us to leverage the deep global healthcare knowledge, local market talent, and expertise of both organizations to ensure that consumers have access to affordable and personalized solutions across diverse life and health stages and position us for sustained success," Cordani said.
Indeed, there is not much overlap between Anthem and Cigna's current business. Anthem operates for-profit Blue Cross insurers in 14 states, plus the Amerigroup Medicaid plans in 19 states and other subsidies, with much of its business from individual health plans, small businesses and Medicaid.
Cigna's main health insurance businesses are in the large group self-funding and TPA segments and to a lesser extend Medicare Advantage, via HealthSpring. Cigna has sold individual ACA exchange plans in only five states (which have not included its home state of Connecticut), while Anthem covers almost 900,000 public exchange customers. About 50 percent of Cigna's revenue is also in non-U.S. healthcare products, in international and expatriate benefits as well as disability and supplemental products.
That should pair well with Anthem, but there are risks--as there are with Aetna's Humana takeover--that could threaten the promises of profits for investors and affordability for consumers.
The price of $54 billion surpasses the Aetna-Humana deal as the largest ever insurance consolidation in the world, and it's going for a company whose products, services and strategies are unique in their own ways but not hugely different from peers in commercial health insurance. Likewise with Aetna's Humana takeover, the bet is on Humana's government-funded health plans and provider strategies, but those are similar to industry-wide approaches in markets that others are flocking to.
It's an open question, still, whether these and other mergers will actually benefit consumers in addition to Wall Street.
Both deals will be subject to more than a year of regulatory approval and could require divestments of assets. During that time, it will also be an open question whether the companies can successfully blend their workforces and businesses--especially in the Anthem-Cigna deal, which was first mired in friction.
After months of rumors about who might buy who, official news of the Anthem-Cigna deal actually came in the form of Cigna publicly-rejecting Anthem's bid--with some subtle but notable disses. Cordani and Cigna chairman Isaiah Harris called out a host of concerns, including representation of Cigna leaders in corporate governance and problems with the company formerly known as WellPoint..
"You are," Cordani and Harris wrote to Swedish, "facing a number of major issues, including Anthem's lack of a growth strategy, complications relating to your membership in the Blue Cross Blue Shield Association and the related antitrust actions, and other significant challenges, such as the massive data breach you experienced in February."
The original $53.8 billion deal called for Swedish, age 63, to be board chair, CEO, president and "head of integration" of the new company, an idea Cordani and Harris called "disconcerting and risky."
Now, Swedish will be chair and CEO while Cordani, age 49, will be president and COO. Cigna also won additional governance representation, with five sets for Cordani and four others from Cigna on the 14 member Anthem board.
It's clear is that the health insurance industry's consolidation is going to continue along with the evolution in American healthcare, while the outcomes remain to be seen. "Nothing of this size or scale has been attempted in our sector," as Cordani and Harris noted.