The country's largest health insurer is kicking the tires on acquiring one of its largest competitors.
The Wall Street Journal reports Minnetonka-based UnitedHealth Group Inc. approached the third-largest insurer, Aetna Inc., about a takeover deal (with a value likely more than $40 billion).
The Wall Street Journal says it's not known what response Aetna had, if any at all; the paper notes any potential deal is far off, and not a certainty.
Regardless of what happens, the report is another example of the jostling and potential consolidation happening at the top of the health insurance food chain right now.
The Big 5
There are a hands' worth of for-profit health insurance companies that dominate the U.S. marketplace right now, often referred to as the "Big Five." They are:
- Anthem Inc. (formerly Wellpoint)
- Aetna Inc.
- Cigna Corp.
They're all looking to get bigger, naturally. But as The Street noted in January, there are "few opportunities" for large health insurers to suddenly gain millions of news customers.
Unless you buy them from someone who already has them.
United being interested in Aetna is just the latest report.
Anthem recently showed interest in acquiring Cigna, which sent Cigna's shares higher, USA Today reported. Cigna reportedly turned them down.
Humana is willingly putting itself on the sales block – the Courier-Journal reports Anthem and Cigna have both shown interest in buying the fifth-largest insurer.
Consolidation not a surprise
Reports portray the large potential mergers as something that's been expected.
USA Today called it an "anticipated consolidation" of the industry. According to the Courier-Journal, analysts have predicted such moves for awhile now.
The Wall Street Journal described the recent activity as a "frenzy of merger talks."
The Street spoke with an FTI Consulting managing director, who said the consolidation has basically been paused since 2011 "mostly because of the questions and concerns surrounding the Affordable Care Act."
At this point, they're assuming the healthcare laws are permanently here, and are making adjustments based on that reality, The Street says. That includes large health insurers looking to combine with their biggest competitors, and also scooping up smaller companies in areas they're currently weak.
Last fall, the American Medical Association released the results of a study looking at competition in the health insurance industry.
It found a "significant absence" of competition on 72 percent of the metro areas it looked at.
"The AMA is greatly concerned that in 41 percent of metropolitan areas, a single health insurer had at least a 50 percent share of the commercial health insurance market," said AMA President Robert M. Wah, M.D., in a news release. "The dominant market power of big health insurers increases the risk of anti-competitive behavior that harms patients and physicians, and presents a significant barrier to the market success of smaller insurance rivals."