Humana Deal Eyed as Merger Talk Grows | Business News

Humana Deal Eyed as Merger Talk Grows

30 May 2015 | Author: | No comments yet »

Agile Proponent Humana May Look for Buyer.

Health insurer Humana Inc. Humana Inc. has become an acquisition target thanks to its big presence in Medicare Advantage, the private-sector version of the U.S. program that’s one of the fastest-growing pieces of the health insurance market. HUM 20.31 % is exploring a possible sale of the company, a move that could trigger a round of mergers in an industry grappling with challenges and opportunities the federal health-care overhaul has created.

Faced with pressure to cut costs and find ways to profit from the potential new customers the Affordable Care Act is generating, 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. The company was trying to address some of those cost challenges through a separate software development lab that builds mobile apps that help customers monitor their health, CIO Journal reported earlier. 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. Any deal for Humana would be expensive: The insurer had a market value of about $28 billion before The Wall Street Journal reported on the company’s deliberations. The lab, known as the Digital Experience Center, has a West Coast feel, with its ping pong table, bike rack and staff of young designers and engineers, who end their standup morning meetings with a hand clap.

Humana’s individual Medicare Advantage enrollment jumped 15 percent to 2.7 million people in March from a year earlier, and the company has said it expects growth of about 13 percent this year. Beyond developing apps, the DEC is a corporate proving ground for software-development techniques with names like Agile and DevOps that are a familiar part of the way tech companies work. It’s too early to tell what will happen to the DEC, which sits across the street from Humana’s Louisville headquarters, in the event of a merger with another health insurer.

But the methodologies the DEC practiced have spread beyond Silicon Valley and into the mainstream, as companies adjust to a mobile, digital business environment. As Antonio Melo, practice director at Humana and a full timer at the DEC, told CIO Journal: “To compete in the 21st century, any company that is serious needs to augment their strategy to be in line with technology and design and be more human-focused.” They had risen 42% over the past year before the latest news, with much of the surge tied to speculation about a potential deal, as well as optimism about the Medicare business’s growth prospects. “We view this step as a trigger event in a managed-care industry overdue for consolidation,” analysts at Leerink Partners LLC wrote in a research note Friday afternoon. “We expect the next year will see multiple strategic actions among the major players.” The industry is facing pressure to squeeze out costs, and mergers could help. An ever-larger share of the companies’ business is tied to government programs and the health law’s exchanges, where individuals—who tend to be more cost-conscious—buy their own plans.

Getting bigger could also give insurers increased leverage in negotiating rates with hospitals, many of which have expanded through their own mergers. The company acquired Coventry Health Care Inc. for about $8.7 billion including debt in 2013, seeking to benefit from growth in Medicare and the Medicaid program for the poor. Besides Aetna and Cigna, the other major insurers are UnitedHealth Group Inc., UNH 0.49 % the largest by revenue, and Anthem Inc., ANTM 2.21 % while a roster of smaller companies are also seen as likely to be swept up in deals. In the first quarter, its membership rose to 14.2 million customers and revenue jumped 18%, though its earnings fell short of Wall Street expectations. After UnitedHealth, Humana is the second-biggest purveyor of Medicare Advantage plans, with 3.19 million beneficiaries, or approximately 18% of the total enrollment in the private plans, according to a tally by Wells Fargo Securities.

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. Cigna and Anthem also have been linked to Humana, though some industry experts believe an Anthem tie-up could face regulatory challenges over Humana’s commercial business, which overlaps with Anthem’s in markets such as Kentucky. A UnitedHealth deal has been seen as less likely because of the potential size of their combined Medicare businesses, which could draw antitrust pushback. Write to Liz Hoffman at, Dana Mattioli at, Dana Cimilluca at and Anna Wilde Mathews at

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