Insurer Aetna to buy Humana in $37B deal

A takeover approach for Humana earlier this year thrust the biggest health-insurance companies into a five-way merger frenzy.

The merger now throws the spotlight on the fate of fellow Connecticut insurer Cigna.

Healthcare giant Aetna announced a $37 billion agreement Friday to acquire rival Humana, bringing together two of the United States’ biggest health insurers.

The scheme is designed to encourage cost-cutting and rationing of care along class lines by phasing out the so-called “fee for service” system and replacing it with incentives to health care providers to withhold more expensive drugs, tests and procedures from working class and most middle class patients. “To develop a similar scale in Medicare would take a great deal of work and time, which would be bypassed by making that transaction happen”.

“I think it’s very fair to speculate that it will lead to more jobs”, Mayor Greg Fischer said of the deal. Antitrust reviews are “never totally predictable, but we believe it’s very manageable”, Mr. Bertolini said in an interview. Insurers like Aetna and Humana play a role in contracts with the government to provide benefits to seniors.

Aetna offered $230 (208 euros) per share, at a total of $34 billion, the two companies declared in a joint statement on Friday, though the deal is still subject to approval from shareholders and cartel authorities. Since 1975, the Humana Foundation has contributed more than $250 million in this community. That’s 23% higher than Humana’s closing price on Thursday.

Aetna and Anthem have cited the potential to improve their technology as a major reason behind their deals. Aetna’s absorption of Humana nets it 14 million customers across its commercial, Medicare and Medicaid programs.

Over the past few years, Humana has set itself up as a leader in the Medicare Advantage space. The Louisville, Ky., insurer has been moving rapidly to forge close ties with doctors and other providers in efforts to boost performance and rein in costs.

Before the planned sale, Humana had an estimated $32-billion market value. Aetna will be acquiring all the shares of Humana in exchange of cash and their own shares. The combined membership includes Humana’s 3 million TRICARE members, under a program of health care coverage for military families and retirees administered by the U.S. Department of Defense.

Aetna’s current CEO Mark Bertolini will serve as Chairman and CEO of the combined companies. The company’s stock is expected to soar when trading resumes on Monday, on the back of the acquisition news.

Humana has missed analysts’ earnings projections for the past three quarters. The entire health care overhaul, including in some cases the very language of the law, was dictated by industry representatives to tailor its provisions to their interests.

One of the largest employers in the city of Louisville has agreed to be sold. UnitedHealth Group (UNH) remains the nation’s largest health insurance company with Anthem (ANTM) at No. 2 though both have had discussions with smaller plans about merging and Anthem has made several recent overtures to Cigna (CI). The deal isn’t expected to close until mid-2016.