Cigna, Humana Are Discussing Combination of Insurance Giants

(Bloomberg) — Cigna Group and Humana Inc. are in talks about a potential cash and stock combination to create another giant of the health insurance industry, people familiar with the matter said.

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The timing and structure of a potential tie-up isn’t clear, according to the people, who asked not to be named discussing non-public information. Representatives for the two companies didn’t immediately respond to messages seeking comment.

A combination could create a powerful challenger to rivals UnitedHealth Group Inc. and CVS Health Corp. Yet the size of the combination still wouldn’t approach that of UnitedHealth Group Inc., the largest insurer with a market value of almost half a trillion dollars. Cigna’s market cap is about $80 billion while Humana’s is roughly $63 billion.

Cigna shares fell as much as 7.3%, the most intraday since August, while Humana was down 3.2% at 1:34 p.m. in New York. The news sent rival Centene Corp., which had been seen as another potential target for Cigna, down as much as 6.7%.

If consummated, the deal would shrink the number of publicly traded national health insurers from six to five and give the combination more negotiating leverage in dealing with hospitals or Medicare, said Glen Losev, an analyst at Bloomberg Intelligence.

“Health insurance is a scale business,” Losev said. “They would have more ability to expand their profit margins.”

Complementary Features

The two companies have some complementary features, Losev said. Cigna owns Express Scripts, one of the largest managers of pharmacy benefits, while Humana is one of the biggest providers of plans that manage private versions of Medicare, the US health program for seniors. Cigna’s Medicare business is small by comparison. Humana has said it is going to stop selling employer coverage, where Cigna is strongest.

The combination would still likely face antitrust hurdles in an industry where some have been blocked by regulators. Those include a proposed tie-up between Cigna and Anthem, now Elevance Health Inc., and a separate deal for Humana to combine with Aetna.

Cigna Chief Financial Officer Brian Evanko said at a conference this month that any proposed mergers must have “a high probability of closing,” a position that the company has long held.

The discussions of a deal were reported earlier by the Wall Street Journal, which cited people familiar with the matter.

The last major wave of industry consolidation took place about five years ago when CVS closed its near-$70 billion deal for Aetna.

–With assistance from Fiona Rutherford and Gerry Smith.

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