Business

Anthem to buy Cigna, creating new health insurance giant

Anthem's corporate headquarters in Indianapolis. Anthem is buying rival Cigna, in a deal that will create the nation's largest health insurer by enrollment, covering about 53 million patients in the U.S.
Anthem's corporate headquarters in Indianapolis. Anthem is buying rival Cigna, in a deal that will create the nation's largest health insurer by enrollment, covering about 53 million patients in the U.S. AP

Anthem, the nation’s second-largest health insurer, will acquire Cigna, the nation’s fifth largest, for $48.4 billion, the companies announced Friday, creating a health insurance behemoth that raises fresh questions about competition in the industry.

The deal values Cigna’s at $188 per share, a 38 percent premium from its closing price of $154 a share on Thursday. Cigna shareholders will receive a combination of stock and cash in the transaction.

A merged company would serve 53 million people and is part of a dramatic, long-predicted reshaping of the health insurance landscape as a result of the Affordable Care Act. UnitedHealthcare has 45 million members, and Humana and Aetna announced they would merge in July, creating a company serving 33 million people. The new company is projected to generate $115 billion in annual revenues.

“We believe that this transaction will allow us to enhance our competitive position and be better positioned to apply the insights and access of a broad network and dedicated local presence to the health care challenges of the increasingly diverse markets, membership, and communities we serve,” said Joseph Swedish, president and chief executive officer of Anthem, in a statement. He will remain chief executive of the new firm.

“Going forward our new company will deliver an acceleration of innovative and affordable health and protection benefits solutions that help address our health system’s challenges and provide supplemental insurance protection, and health care security to consumers, their families, and the communities we share with them,” said David M. Cordani, president and chief executive officer of Cigna.

Anthem is parent to the well-known Blue Cross and Blue Shield plans in 14 states and a Medicaid plan called Amerigroup in 19 states. Cigna, meanwhile, has well-known insurance plans in the United States and globally. The combined firm will serve individuals, employees and governments. It will close in late 2016, pending regulatory approvals.

The deal follows new challenges in the health insurance industry. Analysts say that because of caps on the profit that insurers can make on their plans, the companies have been looking to cut administrative costs by increasing their scale. The larger companies will also have increased clout in negotiating rates with hospitals and doctors groups.

While the deals might make business sense, it is far less clear what impact the mergers will have on customers.

 

Some analysts say that the growth of insurance premiums could slow because the industry is regulated and the new companies will be more efficient. However, a 2012 study of the 1999 merger between two large insurers, Aetna and Prudential, found that premiums rose by seven percentage points. Another study in the American Journal of Health Economics found that having more insurers in the marketplaces set up by the Affordable Care Act brought the cost of premiums down.

The Cigna-Anthem deal has been rumored for months, and Cigna publicly spurned Anthem’s first offer in June, rejecting an offer of $184 per share.

 
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