Aetna to buy Humana for $35 billion

A woman passes the Hartford, Conn., headquarters of Aetna on July 31, 2008.

A woman passes the Hartford, Conn., headquarters of Aetna on July 31, 2008.

(Bob Child / Associated Press)

Aetna will spend about $35 billion to buy rival Humana and become the latest health insurer bulking up on government business as the industry adjusts to the federal healthcare overhaul.

The proposed cash-and-stock deal, announced early Friday, would make Aetna a sizable player in the rapidly growing Medicare Advantage business, which offers privately run versions of the federally funded healthcare program for the elderly and some people with disabilities.

Humana has nearly 3.2 million people enrolled in Medicare Advantage plans, a total that falls just sort of market leader UnitedHealth Group Inc.


The combination also would bolster Aetna’s presence in the state- and federally funded Medicaid program and Tricare coverage for military personnel and their families.

The deal value totals about $37 billion, counting debt.

Hartford, Conn.-based Aetna announced its deal a day after the Medicaid coverage provider Centene said it will spend $6.3 billion to buy fellow insurer Health Net. That deal would help Centene expand in the nation’s biggest Medicaid market, California, and give it a Medicare presence in several Western states.

The federal healthcare overhaul is expanding Medicaid coverage in several states as it attempts to provide health coverage for millions of uninsured people. Meanwhile, Medicare Advantage has seen its total enrollment triple over the last decade to 16.8 million people.

“Government markets are the most rapidly growing aspect of the system,” said Dan Mendelson, chief executive of the market research firm Avalere Health.

Friday’s deal comes two years after Aetna completed another push into government business with the $6.9 billion acquisition of Coventry Health Care, which administers Medicaid coverage and offers Medicare Advantage plans.

Health insurers have been trying to consolidate for weeks in a fresh merger wave. The Blue Cross-Blue Shield carrier Anthem went public late last month with an offer of more than $47 billion for another insurer, Cigna.


Cigna rejected that deal, but the Wall Street Journal, citing anonymous sources, reported Thursday that the companies were still talking.

The combined company of Aetna and Humana would be a smaller player in the California market. Aetna had 5% market share in the state, according to the latest Citigroup data for 2012, and Humana had less than 1%.

The deal might put pressure on Anthem to wrap up its months-long pursuit of Cigna. Analysts say federal antitrust officials may only allow a couple of mega-mergers. Anthem is California’s largest for-profit health insurer.

Health insurers see several advantages to combining. These multibillion-dollar deals offer an infusion of new business at time when growth has slowed in the biggest part of their business, employer-sponsored health coverage. Plus more employers are opting to pay their own insurance claims and hire insurers to administer the coverage. That’s a less lucrative line of work for managed-care companies.

Big deals also allow companies to quickly diversify their products and cover more territory. They also improve their technology and can ultimately save money by combining the back-office functions of two companies and cutting overlapping jobs.

The impact on consumers can be murky and likely won’t be felt for at least a year, because insurers have already finalized most of their plans for coverage that starts in January. A combination may lead to fewer choices and some price changes for consumers, depending on where they live and who already is in their market. A deal also may foster technology improvements that lead to things like better smartphone applications for pricing or finding healthcare.

Aetna’s purchase price for Humana includes a combination of cash and stock worth about $230 per share, based on the closing price of Aetna’s stock on Thursday. Aetna shareholders would wind up owning about 74% of the combined company, and Aetna’s leader, Mark Bertolini, would serve as chairman and chief executive.

The combined company will cover more than 33 million people. Only UnitedHealth Group and Anthem cover more. A combined Aetna-Humana would be the second-largest insurer by revenue.

Shares of Aetna and Humana closed at $125.51 and $187.50, respectively, on Wall Street on Thursday. U.S, markets were closed Friday for the July 4 holiday.

The shares of both companies, like several other insurers, have soared to all-time-high prices this year. The price of Humana shares, in particular, bolted past $200 in May after the Wall Street Journal reported that the insurer was a takeover target.

Times staff writer Chad Terhune contributed to this report.