Negative Externalities: Consolidation Wave in Health-Insurance Industry Intensifies — #ObamaCare

This is the kind of industry tendency you see when markets are dysfunctional from heavy-handed regulation. It's funny too, since leftists used to be the ones decrying big corporations as the enemy of the little people. Not any more. The insurance industry is shaking out to a few big providers of services, no doubt the result of a survival of the fittest effect following our national ObamaCare nightmare.

Remember, with this kind of consolidation you get monopolistic effects, and less competition means higher costs to consumers in the long run. ObamaCare has not reined in costs as Obama and his clueless proponents have argued. Rates continue to rise and now insurers are scrambling to bulk up among regulatory incentives. The government and big business axis is enlarged at the public's expense, putting the lie to Democrat Party claims as the ally of struggling American families.

At the Wall Street Journal, "Anthem Talks to Cigna on Possible Takeover":

Anthem Inc. has made a takeover approach to Cigna Corp. as talks for consolidation in the health-insurance industry intensify.

The companies have been in discussions for months and within the past 10 days Anthem has made two takeover bids, the last at about $175 a share, according to people familiar with the matter. Anthem’s efforts have been rebuffed by Cigna, the people said.

Cigna Chief Executive David Cordani wants to be in charge of a combined Anthem-Cigna and that has created a stumbling block to a deal, according to some of the people.

Cigna, based in based in Bloomfield, Conn., had a market value of $35 billion Monday morning before The Wall Street Journal reported on the talks. With a typical takeover premium, a takeover could value the company at well over $40 billion. Anthem, based in Indianapolis, had a market value of $43 billion.

Shares of Cigna rose 15% on the news to $157.37 in midday trading, while Anthem’s stock rose 2.5% to $164.75.

The industry is facing intense pressure to squeeze out costs and find ways to capture opportunities arising from the Affordable Care Act. An ever-larger share of the companies’ business is tied to government programs and the health law’s exchanges, where cost-conscious individuals buy their own plans. Getting bigger also could give insurers increased leverage in negotiating rates with hospitals, many of which have expanded through their own mergers.

The big health insurers have long been expected by analysts to turn to mergers that will give them the heft to better compete as the industry evolves, and when The Wall Street Journal first reported last month that Humana Inc. is exploring a sale of itself, it became clear a consolidation effort in the industry was finally under way in earnest.

The Anthem talks for Cigna show that the next deal in the industry won't necessarily be a sale of Humana, as many industry watchers expected. Indeed, if Anthem and Cigna were to get together, that would remove two possible buyers of Humana, which could leave it with only one major dance partner, Aetna Inc., which itself could be a takeover target.

Humana has hired Goldman Sachs Group Inc. to explore so-called strategic alternatives and had held sale talks with companies including Cigna and Aetna, people familiar with the matter have said. Humana, based in Louisville, Ky., gets the bulk of its revenue from its business administering the private version of the federal Medicare program. The company is seen as a prize because of its powerful Medicare franchise, which is growing rapidly as baby boomers age into eligibility and opt for these plans, known as Medicare Advantage.

Aetna has been viewed by some industry analysts as the most likely acquirer of Humana, and executives at Aetna have spoken publicly about their interest in acquisitions. Anthem also has been linked to Humana, though some industry experts believe such a tie-up could face regulatory challenges over Humana’s commercial business, which overlaps with Anthem’s in markets such as Kentucky.

Meanwhile, UnitedHealth Group Inc., the biggest player in the industry by revenue, is eyeing Cigna and Aetna, according to people familiar with the matter. A UnitedHealth deal for Humana has been seen as less likely because of the potential size of the two companies’ combined Medicare businesses, which could draw antitrust pushback.

The welter of takeover activity in the industry stands out even by the standards of what has become one of the hottest mergers-and-acquisitions markets in years. As always with M&A, it is possible no big deals will be struck in the industry in the foreseeable future and other potential combinations may yet arise...

More.