Big Health Keeps Getting Bigger: Aetna To Buy Rival Health Insurer Humana

Consolidation continues to occur in the already consolidated health insurance market as hot on the heals of Anthem’s $54 billion bid for rival Cigna, Aetna announced it will acquire all outstanding shares of Humana at roughly $230 per Humana share.

The cash and stock deal represents a 23% premium to Humana’s Thursday closing price.

The massive new company will have over 33 million members, revenue of over $115 billion per year, and have 56% of sales coming from government-sponsored programs such as Medicare.

“This combination will allow us to continue to invest in excellent service for our members and strengthen our partnerships with providers to deliver high quality care at an affordable price,” said Mark Bertolini, Aetna’s chairman and CEO, in a statement.

Both Aetna and Humana shares fell nearly 3% on Thursday prior to the deal being announced.

The U.S. health insurance industry has seen lots of deal making lately as in addition to Anthem’s offer for Cigna, UnitedHealth had been interested in either Aetna or Humana. 2014 was a huge year of healthcare mergers with giant Pfizer offering over $100 billion for rival AstraZeneca at one point.

In the health insurance industry the race for deals has been driven by The Affordable Care Act which has meant more business for major insurers because of more Americans having health insurance, but lower margins due to provisions in the act.

By merging, company can in theory reduce costs and thus maintain margins on the Affordable Care Act plans. There is also a race to do deals before the November open enrollment period, the next such period on the act’s roadmap.

While plans may continue to be cheap on the surface, many doctors fear that these mergers will put even more power into the hands of a precious few health insurance companies.

Bigger insurers could raise premiums in the future or reduce the number of doctors and hospitals in coverage plans.

These are sure to be questions that will be asked by the Federal Trade Commission when it examines the mega deal, should it be approved by both groups of shareholders.