Cigna tumbles on Humana merger talk reports; FTC already probing PBMs

Cigna Group  (CI) – Get Free Report shares moved sharply lower Wednesday following a report from the Wall Street Journal that the health insurance group is involved in merger talks with its smaller rival Humana  (HUM) – Get Free Report.

The Journal said the pair are discussing a cash-and-stock deal that would create one of the largest health insurers in the country and challenge the market dominance of UnitedHealth  (UNH) – Get Free Report, which is valued at around $500 billion.

Earlier this month, Humana echoed concerns expressed by UnitedHealth over the summer that older Americans who had postponed elective surgeries during the Covid pandemic were now seeking treatments that could elevate costs and weigh on profit margins. 

The group’s benefit-expense ratio, which tracks payouts on claims against collected premiums, rose by more than a percentage point from last year to 86.4%.

CVS Health  (CVS) – Get Free Report has said much the same about its Aetna healthcare division as well.

“We continue to experience an increase in COVID admissions in the third quarter, whereas our forecast previously assumed that this would occur in the fourth quarter,” Humana CFO Susan Diamond told investors on a conference call on November 1.

“At the same time, we’ve experienced higher-than-expected medical cost trend within our Medicare managed business and have worked hard to mitigate the impact of these trends in order to deliver on our enterprise earnings and EPS commitments,” she added.

Cigna, meanwhile, posted a better-than-expected benefit-expense ratio of 80.5% for the three months ending in October, and lifted its full-year profit forecasts thanks in part to solid revenue gains from its commercial insurance unit and an 8% gain in sales for its Evernorth Health pharmacy benefits management (PBM) division.

A big impediment to any potential tie-up between Cigna and Humana, however, would likely come from the Federal Trade Commission, which has taken a far more active role in challenging mega-mergers under the leadership of Lina Khan.

The FTC has, in fact, cautioned the three largest pharmacy benefit mangers – CVS’ Caremark, Cigna’s Express Scripts and UnitedHealth’s OptumRx – of likely changes to the industry’s broader regulation.

“As drug prices have soared and independent pharmacies have shuttered, scrutinizing the practices of PBMs is more critical than ever,” the FTC said in a statement on July 20.

“The FTC is now pursuing an inquiry into the PBM industry, one that is designed to capture and detail the current realities on the ground in this complex marketplace,” the statement added.

Cigna shares were marked 4.4% lower in early afternoon trading following the Journal report and changing hands at $273.52 each. Humana shares, meanwhile, were down 1.3% at $503.85 each.


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