©PondPhotography2014-1By David Wetzler
President, SRA Benefits

The resolution of a Supreme Court case that had threatened a key piece of the Patient Protection and Affordable Care Act appears to have paved the way for recent healthcare deals. The court’s 6-3 ruling on June 25 kept subsidies flowing to help more than 6 million people buy health coverage in the markets created by the health-care overhaul.

On July 3rd, Aetna announced it had reached a deal to acquire Humana.  Aetna struck a $35 billion cash-and-stock deal for Humana, the first in an expected wave of consolidation among the largest companies in the industry. The deal would bring together two of the biggest health insurers in the United States. The combined company would have estimated operating revenue of $115 billion this year and serve more than 33 million people, creating the No. 2 U.S. health insurer by sales, after UnitedHealth Group.

The proposed merger occurs as the nation’s largest for-profit health insurers seek ways to reduce costs and capitalize onACA logo growing opportunities in the government and individual markets. The companies say they will be able to operate more efficiently and negotiate more effectively with large health systems, which have also been consolidating. By acquiring Humana, Aetna gains a large presence in Medicare Advantage, the private health program for the elderly that’s expected to grow rapidly. Health plan providers have also been under pressure to get bigger after the 2010 U.S. reform known as Obamacare triggered a race for new customers, while reducing their margins.

With Aetna Inc. and Humana Inc. pairing off, pressure is mounting on other major health insurers to make their own deals. Cigna Corp.’s tie-up with Anthem Inc. could be the next one on deck. Cigna rebuffed a bid from Anthem last month, and both were said to have been interested in Humana. Anthem’s deal for Cigna would give the companies more scale in commercial coverage, and Anthem has also said that Cigna’s Medicare Advantage business is appealing.

The Aetna/Humana acquisition is expected to close in the second half of 2016, and we don’t expect the impending deal to have any real effect on current Humana policy holders over the next 8-12 months.  We will continue to keep you apprised of any further M&A developments in the healthcare space.

For more information on this acquisition, here is a link to the companies’ joint press release: http://www.businesswire.com/news/home/20150702005935/en/Aetna-Acquire-Humana-37-Billion-Combined-Entity#.VZroY_lVhBd