An industry-redefining merger of Humana Inc. (NYSE: HUM) and The Cigna Group (NYSE:CI) is reportedly in the works.
The deal, if completed, would create a massive company that spans nearly every segment of the health insurance industry. It would also create a formidable clinical and health services division prominently featuring behavioral health.
Late Tuesday, a former Humana and Cigna insider, Wendell Potter, wrote the two health insurance titans were in talks to merge, with Cigna acquiring Humana. The next morning, The Wall Street Journal reported that a deal could be reached as soon as the end of 2023.
A Cigna representative did not respond to a request for comment. Humana declined to comment.
The combined market share of these companies would be about 12%, elevating it to share the No. 2 spot with Elevance Health (NYSE: ELV) behind UnitedHealth Group (NYSE: UNH), based on previous market research by the American Medical Association.
Both operate distinct clinical and health services entities that offer business-to-business (B2B) and direct-to-consumer services (D2C) through in-person — notably in-home — and virtual settings.
Louisville, Kentucky-based Humana’s only other major division apart from its insurance business is CenterWell, which offers home-based care and hospice, pharmacy dispensing and outpatient value-based primary care under the CenterWell Senior Primary Care and Conviva Care Centers brands. Humana is focused on managing care and other benefits on behalf of other enterprises. Its largest sources of business are administering federal Medicare Advantage plans for seniors and other government-backed benefits.
It announced in February that it would end its employer group commercial health insurance business. It also has a small Medicaid-managed care business.
The CenterWell clinics include behavioral health offerings. Seniors get access to a behavioral health specialist as part of a care team, which includes a physician, social worker, nurses and care coaches. Combined, the two clinic businesses operated about 300 centers in 15 states as of the end of September. Humana said earlier in the month that it could open as many as 100 new locations by the end of 2025.
Most of Bloomfield, Connecticut-based Cigna’s business comes from its health services entity, Evernorth, especially from its pharmacy benefit manager enterprise, Express Scripts. Evernorth generated 77% of its revenue in 2022. Its health insurance business is largely focused on employer group health plans. Earlier in the month, it was reportedly exploring the sale of its Medicare Advantage plan business, according to Reuters.
Evernorth offers behavioral health care and related services through several entities. These include the telehealth platform MDLIVE, the self-guided app inMynd and through a network of virtual behavioral health providers such as NOCD and Pelago (formerly Quit Genius).
Collectively, Cigna said it grew its behavioral health provider network in 2022 by 30%, doubling since 2018. Company executives said during Cigna’s second-quarter earnings conference call that it was tracking a historic increase in behavioral health benefits utilization as well as point-solution fatigue in the employer market.
Behavioral care represented 25.1 million of Cigna’s 164 million customer relationships in the third quarter, according to the company. This is the largest single segment of any of the customer relationships defined by the company.
Apart from creating a gargantuan clinical and health insurance company — the alleged merger would provide a compelling test of the Biden administration’s stance on mega-mergers.
Potter wrote that Humana and Cigna jettisoning their commercial health insurance and Medicare Advantage plans, respectively, could be an attempt to eliminate overlap between the two businesses. In so doing, this may preempt arguments from federal overseers that the merger would decrease competition in those segments, a key antitrust tenet.
The federal government, under the Obama administration, put the kibosh on attempted mergers by Humana and Aetna, and Cigna and Elevance Health (NYSE: ELV), then known as Anthem, on the grounds that the deals violated antitrust statutes and would ultimately hurt American consumers.
The Biden administration has put out signals that it may be skeptical of the deal.
In July, the White House released new, tougher guidelines on merger oversight that specifically called out the health care sector for “monopolistic labor markets.” It has also proposed more explicit and pointed rules around behavioral health benefit parity, a move well-received among behavioral health care advocates.
The Biden administration has also released a proposed rule to increase the quality of care financed through Medicaid.
Apart from the regulatory considerations, trimming both businesses would be no loss at the end of the day if a merger happened.
Humana, the second-largest Medicare Advantage business by enrollment behind UnitedHealth Group, has about 5.5 million members, about nine times as many as Cigna’s Medicare Advantage business, according to Kaiser Family Foundation data. Further, Humana’s commercial health insurance business shrank 13% in 2022 to 556,300 members; compare that to the 2.24 million commercially insured lives and 12.6 million commercial lives receiving services only at Cigna.