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Health care industry merger mania continues with Anthem's deal to buy Cigna

by Thomas Dworetzky, Contributing Reporter | July 24, 2015
Business Affairs Population Health Primary Care
And now there are just three major health insurers in the U.S. — assuming regulators approve Anthem's just-announced acquisition deal for Cigna.

The purchase price is $48.4 billion and, if approved, could "reshape the U.S. health insurance industry," according to the Wall Street Journal. With debt the deal, for $188 a share, would total $54.2 billion. For each share, Cigna stock holders would get $103.40 in cash and 0.5152 shares of Anthem. The transaction is expected to be completed in 2016.

Anthem CEO Joseph Swedish will keep his top slot as CEO and also become the company's chairman. Cigna CEO David Cordani's role had been an issue during negotiations and has apparently been resolved. He will become president and operations chief.

Swedish is “confident in our ability to obtain regulatory approvals,” he said in a statement, adding that “no substantive antitrust or insurance regulatory issues are present that would prevent completion of the transaction.”

Together the merged company would pull in $115 billion in revenue yearly, according to the paper. Insurance market leader UnitedHealth Group, which has the biggest annual revenue of all providers, is the only one of the five top companies on the merger sidelines — at least for the present.

“We are very pleased to announce an agreement that will deliver meaningful value to consumers and shareholders through expanded provider collaboration, enhanced affordability and cost of care management capabilities, and superior innovations that deliver a high-quality health care experience for consumers," said Swedish.

What is apparently is driving this urge to scale up in size, at least in part, are the carrots and sticks found in the Affordable Care Act, which has pushed revenues for insurers up, as many more people are insured, while putting downward pressure on profit margins. This is forcing a race to mergers to cut duplicate overhead — and to give insurers more leverage to negotiate pricing with health care providers and pharmaceutical companies, according to target="blank">CNBC's David Faber, The New York Times and other industry watchers.

"We believe that this transaction will allow us to enhance our competitive position and be better positioned to apply the insights and access of a broad network and dedicated local presence to the health care challenges of the increasingly diverse markets, membership, and communities we serve," said Cigna's Cordani in a statement, subtly indicating the competitive advantages afforded a larger, combined company.

As for projections of the end of employer insurance, made by ACA naysayers, a new RAND study confirms that far from destroying this traditional source of insurance, employee insurance actually grew the fastest of any group since ACA, with roughly 9.6 million individuals getting newly insured through their employers, according to a report of the study by CNBC news. This outstripped the 6.5 million who got new insurance through Medicaid and the 4.1 million who got new coverage through plans on government-run exchanges.

"We don't see any evidence of a decrease in the offer of employer-based insurance," said Rand economist Katherine Carman, lead author of the report.

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