Market ripe for acquisition

April 10, 2009

Health plan industry is trading at a discount so rumor of Aetna acquisition of Humana may not be far off base.



Rising shares have fueled speculation that Aetna could acquire Humana.According to the Hartford Courant, Aetna’s CEO, Ronald Williams, has said that the Hartford-based insurer may be looking for acquisitions. “We have capital we’ll either use for acquisitions or for continuing share buybacks,” he says.

Aetna spokesperson Wendy Morphew said she was not able to “comment on rumors or speculation.”

The whole health plan industry is trading at a discount amid uncertainties from the recession, the quickly changing marketplace, and anti-insurer sentiment in the administration and on Capitol Hill, according to Kip Piper, senior counselor atFleishman-Hillard and president of Health Results Group, a Washington, D.C. consultancy firm.

“Based on traditional metrics, including low share prices and opportunities for scale economies, pricing power and product diversification, it may be a good time for further consolidation,” he says.

There are also huge, largely untapped business opportunities for smart health plans, most notably the $300 billion dual-eligible market, Piper says. There’s also $40 billion over the next five years for children's health coverage and growing interest in new solutions for employers and states.

“Already suspicious about the role of capitalism in healthcare, Democrats inCongress and the White House are, at best, skeptical of the value of commercial health plans,” Piper says. “The health plan industry faces an unprecedented range of political and regulatory challenges. These are best illustrated by Democrats’ strong interest in creating a government-run or public plan to compete with commercial health plans.”

The sea change facing the industry is driven by what Piper calls a “troubling mix of ambitious federal health policy goals, ideology that favors government over private-sector solutions, a populist media, and general ignorance about the value generated by top-performing plans.

“This dynamic environment makes business planning extraordinarily difficult,” he continues. “Ironically, the challenges are more cognitive than financial. To succeed, insurers must make sense of the emerging, potentially radically altered marketplace and their place in it. Government often does not understand business, but the reverse is also true.”