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Growth in Government Managed Care a Major Feature of Aetna, Humana Merger


Aetna's purchase of Humana would create a managed care company with $115 billion in revenues, of which 56% would be from government business. In addition, the combined company would have the largest enrollment of members on public exchanges, with 1.7 million members.

If there’s one thing that can be said about Aetna’s $37 billion purchase of Humana, it’s that government has everything to do with this union.

The merger, announced Friday and discussed in a conference call with analysts this morning, will create a managed care company with more than half its revenue (56%) coming from government business, including Medicare Advantage, Medicaid and TRICARE, the system for military members and their families.

In addition, uniting companies with projected combined 2015 revenues of $115 billion will create the nation’s top insurer for consumers on public exchanges, with approximately 1.7 million members, according to information published on Aetna’s website in advance of the conference call.

A June 25, 2015, ruling from the US Supreme Court left intact premium subsidies for low- and middle-income consumers buying coverage on the federal exchange, healthcare.gov. That was the last remaining variable in the way of a merger than had been anticipated for weeks, as consolidation in managed care continues to sweep the industry.

News of Aetna’s $37 billion purchase of Humana, which is a slightly smaller company ($61 billion vs $54 billion in 2015 projected revenues), trickled out Thursday night following unanimous votes by boards of both companies.

According to information from Aetna, the merger will combine 23.7 million Aetna enrollees with Humana’s 9.8 million. Humana has higher enrollment in Medicare Advantage with 3.2 million current members, compared with Aetna’s 1.2 million. By contrast, Aetna is the leader in Medicaid managed care with 2.1 million enrollees, compared with Humana’s 300,000.

Responding to a question, Aetna officials anticipate cooperation from CMS in addressing issues involving “dual eligibles,” who receive Medicare and Medicaid, since the combined company will have a sizable footprint in both areas. Assets of the combined company make it well-positioned to function under CMS’ proposed rules for Medicaid managed care, which envision more seamless transitions for consumers who move between Medicaid eligibility and coverage through the exchanges, due to year-to-year fluctuations in income.

Both Mark T. Bertolini, the chairman and CEO of Aetna who will be the head of the combined company, and Bruce Broussard, president and CEO of Humana, touted the synergies they said would be created by the merger.

The combination, Bertolini said, “will create a leading consumer-centric healthcare organization,” one that will advance both Aetna and Humana’s recent efforts to further what he called the called the “transformation” to from fee-for-service care to population health management.

Both companies have invested in population health management initiatives and products that they see as complementary: Aetna’s Healthagen brand includes programs to launch accountable care organizations, while Humana’s Transcend brand assists providers who are trying to make the transition to value-based reimbursement. Both insurers have assets in data management and decision-making.

Broussard highlighted Humana’s efforts in provider assistance and consumer services, saying “Humana can help Aetna achieve its long-term objectives.”

In time, there is potential for the combined company to become a freestanding pharmacy benefits manager, since there will be 600 million prescriptions between the two in 2015. However, Aetna officials made clear this will not occur before 2019, when an existing contract with CVS expires.

After the merger, Aetna’s Hartford, Connecticut, location will remain the company headquarters and the center commercial coverage, which is considered Aetna’s strength. Humana’s home of Louisville, Kentucky, will be the operations hub for government coverage. Employment in this area could conceivably expand, officials said; the share of Americans covered by government is growing with Medicaid expansion, and Medicare spending will grow as the population ages.

During this morning’s call, officials said that for now, they anticipate regulators will examine the transaction as a standalone deal. However, it is likely that similar transactions will be announced before the anticipated closing in the second half of 2016, and there has been some speculation that too much consolidation within the managed care industry may give regulators pause.

For a transaction of this size, oversight would come from both federal and state levels, especially with regulators in the states where Aetna and Humana are based. Shareholders of both Aetna and Humana must also approve the merger.

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