The healthcare industry is abuzz with news of a potential Cigna and Humana merger. Advisory Board's Jared Landis, Vidal Seegobin, Mallory Kirby, Sally Kim, and Max Hakanson explain why these giants are exploring a merger now, what a combined entity might look like, how it could impact the industry, and the biggest barriers facing this rumored deal. 

A Cigna + Humana merger may be on the horizon 

On Wednesday, the Wall Street Journal reported that Cigna and Humana are in talks for a merger that would "create a new powerhouse in the health-insurance industry."

According to people familiar with the talks, Cigna and Humana are exploring a stock-and-cash transaction that could be finalized as soon as the end of this year, the Journal reports.

While this deal has not yet been finalized, the news of the potential merger has sparked questions and predictions from industry stakeholders. Here's our take on the biggest questions surrounding this rumored deal. 

1. What's in this for Cigna and Humana?

In many ways, this seems like a natural merger. A partnership between Cigna and Humana would marry the organizations' strengths, which conveniently align with one another's weaknesses. 

According to a KFF analysis, Humana is currently the second largest player in the Medicare Advantage (MA) market, with around 18% of the market share, while Cigna only owns about 2%. If the two companies merge, Cigna would immediately become an MA powerhouse. And while Cigna maintains a strong presence in the commercial market, Humana announced their plans to exit the commercial market earlier this year. 

With the commercial insurance market remaining stagnant and the MA market continuing to grow, it stands to reason that Cigna would want to capitalize on Humana's MA presence. 

What’s more, in recent years, Cigna and Humana have both gained scale by entering targeted partnerships, acquisitions, and investments. Both organizations hold complementary assets that could help advance value-based care (VBC) — Humana through ownership and Cigna through data.  

Cigna has looked to advance VBC on the commercial side through Evernorth, its growing health services arm that houses its data and analytics capabilities, in turn better enabling VBC. Additionally, Cigna made a $2.5 billion investment in medical practice Summit Health to become a minority owner. This move gives Cigna the ability to accelerate its VBC arrangements in the commercial space, since VillageMD, the majority owner of Summit Health, is largely focused on the commercial market.

Meanwhile, Humana has been building out a primary care and home health ecosystem to better care for the senior populations they serve and bolster their MA offerings under their CenterWell brand. They've opened a number of senior-focused primary care clinics over the last year, with plans to continue that growth.

2. What can we expect from a Cigna + Humana merger?

While the details of this potential merger have not yet been disclosed, many stakeholders are speculating that this will be a full entity merger. 

Cigna and Humana are large insurers — but they also have diversified healthcare service capabilities. For example, Humana's CenterWell provides home healthcare, primary care, and pharmacy services, and Cigna's Evernorth provides pharmacy services and behavioral health services.

On the insurance side, a union between Cigna and Humana would play to the organizations' strengths and weaknesses. However, their "diversified services" also align well. For example, both organizations operate a pharmacy benefit manager (PBM). However, the size of their PBMs are different.

There are currently three dominant PBMs that control 80% of the market: CVS Caremark, OptumRx, and Cigna's Express Scripts. Last year, Express Scripts brought in $129 billion in revenue compared to only $12 billion from Humana's pharmacy division. A merger that combines PBM assets into a single, larger entity would benefit both Cigna and Humana.  

In addition, Evernorth has physician assets that could aid in Humana's push to build out CenterWell.  

The strength/weakness alignment on the insurance side is important — but the overall company strength/weakness alignment is even more appealing. Though Cigna's PBM assets may ultimately subsume Humana's, the combination of Evernorth's data powerhouse and Humana's care delivery offerings could prove complementary in developing a more complete care ecosystem.

3. How might this shake up the industry?

With Cigna's current market value of roughly $77 billion and Humana's value of around $60 billion, a merger between the two organizations would cause significant ripple effects in the national health plan environment. 

We generally consider the national insurance landscape as dominated by six major plans: UnitedHealthcare (UHC)*, CVS/Aetna, Elevance, Cigna, Humana, and Centene. Even this group doesn't play on an even field. UHC and CVS dwarf the others in both the size of their insurance membership and overall revenue. A Cigna-Humana merger would not only consolidate our national players down to five but would also elevate this new company to a similar size and scale as competitors UHC and CVS.

Elevance and Centene would then lag behind the other national health plans in terms of overall size and scope with their diversity of assets. This deal would naturally lead to speculation and anticipation about potential future deals as large corporate players Walmart, Amazon, and Walgreens look to grow and compete in the healthcare market. 

A merger between Cigna and Humana could ultimately be anticompetitive for smaller players — but it could also be a catalyst for further consolidation. In most cases, consolidation does not equal better prices or more options. As this deal progresses, we'll be watching to see how it impacts things like costs, competition, consolidation, and more. 

4. What are the biggest barriers for this merger? 

There's a lot we still don't know about this transaction. Ultimately, this is all dependent on the merger going through. 

Given the new antitrust guidelines, rising costs in healthcare, and increased pressure to protect consumer interests, this merger is going to be heavily scrutinized by the Federal Trade Commission (FTC) and the Department of Justice.  

Although Cigna and Humana have different strengths and weaknesses, the sheer scale of a merger between them will likely drive regulators to require both organizations to divest in certain assets. 

In particular, the PBM overlap will likely raise antitrust concerns. "A combined Cigna-Humana would still have a lot of overlap with their pharmacy benefit managers," STAT reported earlier this month. "Cigna owns Express Scripts (second-largest PBM, according to Adam Fein of Drug Channels), and Humana owns the fourth-largest PBM. Given how Lina Khan's [FTC] already is scrutinizing PBM market power, it seems like that kind of deal would be an insta-block."

Both Cigna and Humana have attempted sizable mergers in the past decade — and both deals were shot down by regulators. Cigna tried to enter a $54 billion merger with Anthem (now known as Elevance) about 10 years ago and Humana tried to enter a $37 billion merger with Aetna around the same time. 

Now, regulators are scrutinizing mergers and acquisitions even more heavily. Given the fact that this merger would result in the formation of a massive entity, Cigna and Humana are facing significant hurdles.

5. What if this deal doesn't go through?

If regulators block this deal, Cigna or Humana could look to gain more exposure to the government market through an acquisition of a major Medicaid player, such as Molina or Centene given the lack of other major MA players that aren't already owned by a direct competitor.

Since both Molina and Centene are smaller than Humana — and hold fewer assets outside of insurance — regulators could be more likely approve this deal.

However, there's still a chance that Cigna and Humana will merge to create a new, national health services conglomerate. For now, we'll continue monitoring the potential Cigna-Humana merger as it unfolds. (Thomas et al., Wall Street Journal, 11/29; Donlan, Home Health Care News, 11/28; Berryman, Modern Healthcare, 11/29)

*Advisory Board is a subsidiary of UnitedHealth Group, the parent company of UnitedHealthcare. All Advisory Board research, expert perspectives, and recommendations remain independent.