HEALTH insurance corporate giant Anthem Inc. reiterated the merits of its $54-billion offer for rival Cigna Corp. as shares of both companies rose during trading on Monday, June 22.
Joseph Swedish, chief executive of Anthem, said he is “hopeful negotiations with Cigna will be restarted, and a deal can be wrapped up soon.” Anthem said it is not aware of other bidders at the moment.
“This is a strategic priority for us. We are determined to move quickly to complete this transaction,” Swedish told investors and analysts. “I’m hopeful of a good outcome.”
Investors mainly reacted positively to the news of a potential merger between the two companies, bidding up their shares.
Shares of Anthem, the nation’s second-largest health insurer, were up $6.90, or 4 percent, to $171.95 in midday trading on Monday. Cigna, the fifth-biggest insurer, saw its shares jump $7.80, or 5 percent, to $163.06.
Anthem took its negotiation with Cigna public over the weekend, after talks over several issues occurred, including the role of Cigna’s chief executive in a combined company.
Cigna responded, rejecting Anthem’s $184-a-share offer and blaming the company’s management for failing to address several outstanding issues. The cash-and-stock offer is worth $54 billion, including debt.
Together, the two companies would have $115 billion in annual revenue and serve 53 million members. That would make it the largest US health insurer in terms of membership, already ahead of industry leader UnitedHealth Group Inc.
UnitedHealth is already more diversified through its Optum health-services unit and recorded revenue of $130.5 billion last year.
Playing up the growth opportunity with Cigna in Medicare Advantage, the privately run version of the federal health program, Anthem said that the merger would grant Cigna access to the fast-growing program in markets in Florida, Texas, and Pennsylvania. Anthem already has a presence in California, New York, and Ohio.
Those six states represent about 50 percent of Medicare Advantage enrollment, according to Anthem.
“We believe the combination of the two companies will allow us to more significantly grow into the government sector,” Swedish said.
Another concern raised by Cigna has been the difficulty Anthem might encounter by expanding into states where there’s already a Blue Cross Blue Shield insurer.
Blue Cross Blue Shield already has rules governing the competition among its Blue-branded health plans and rights to certain areas.
Swedish expressed confidence that those issues could be resolved, and won’t impede completion of a Cigna deal.
“We are confident in our ability to get regulatory approvals, including matters related to the Blue Cross Blue Shield Assn.,” Swedish said. “Our Blues colleagues are well aware of the movement to consolidation that’s necessary to strengthen the Blue brand…We are living in a new day and new time.”
Some employers and regulators have voiced concern that health insurance merger could reduce competition, driving up premiums. Physician groups are also alarmed that mega-mergers will allow huge companies to dictate reimbursements, giving them too much power in crafting narrower networks.
“Generally speaking, further consolidation in the health insurance industry is not a good thing for consumers, employers or medical providers,” said California Insurance Commissioner Dave Jones. “It means the potential for future price increases as a result of less competition.”
Swedish insisted that customers will instead benefit from the consolidation, which would squeeze out costs and drive up a better bargain with medical providers.
“The customer benefits from a clear improvement in cost efficiencies, choice of solutions and continued investment in simplifying the healthcare experience,” he said.
Commissioner Jones promised to take an active role in scrutinizing any potential transactions, working with federal officials, to make sure the interests of Californians are protected. (With reports from Los Angeles Times)
