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What a Humana-Cigna merger could mean for competition

Health insurance providers Cigna (CI) and Humana (HUM) are in talks to merge in a deal that could be finalized by the end of the year, according to a report from The Wall Street Journal. This mega-deal could potentially create a bigger rival to CVS (CVS) and United Healthcare (UNH).

Yahoo Finance Health Reporter Anjalee Khemlani checks out this story and deep dives into the health insurer landscape and how this potential merger could impact the level of competition.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Video Transcript

JOSH LIPTON: Moving on here, a big story in the health care space today. Cigna and Humana in talks to merge. That's according to The Wall Street Journal. Companies reportedly could finalize the deal by the end of the year. Yahoo Finance's Anjalee Khemlani has the details for us. Anjalee.

ANJALEE KHEMLANI: That's right, Josh. And that is pretty as much as we know right now. The Wall Street Journal saying that, of course, this deal that could close by the end of the year or take place by the end of the year would be a stock and cash option and really would combine two huge insurers. Humana well-known for its Medicare Advantage plans and its focus on senior care. Meanwhile, Cigna large with the commercial space. So that would put two really big companies side-by-side into each other's space.

We do know that in the past, the two have pursued a merger back in 2015, 2016. That never came to fruition. But this is an interesting play considering the fact that we haven't seen such a large mega deal like this in quite some time. This would definitely give Cigna, if it is the acquirer, a platform about the size of what CVS and UnitedHealthcare have those two, which have engaged in mergers in recent years. CVS, of course, notably acquired Aetna.

And so this gives them that level of play when it comes to covered lives, when it comes to market share, and also bronzes out to the provider side with Humana. So really interesting report there.

JULIE HYMAN: Definitely an interesting report. And in creating that report, creating an interesting ripple effect as well, Anjalee, we noticed. Cigna shares, we should mention, first of all, are trading down. But a lot of the other health insurance companies today are also trading down. So talk to us-- talk us through that, what might be going on there and what a deal like this would do not just for those two companies but for the bigger competitive landscape.

ANJALEE KHEMLANI: Yeah. So we know that, of course, a lot of the independent or sort of standalone insurers have decreased over time, like I mentioned, with the CVS-Aetna merger. But they really are only a handful of companies that do exist without sort of vertical integration, which is what we would see in this case.

And of course, there's the players like Molina and Elevance and Centene, really big in the Medicare Advantage, or government payer space. But as you can see on your screen, Humana has a really large portion of that Medicare Advantage space. Cigna, not so much. They've actually struggled with their Medicare Advantage segment and have looked to offload it, according to reports recently. So this really opens up that window.

Also, Humana's chief executive will be retiring by the end of the year and has announced a replacement. So this could all fit really nicely with just how the companies are functioning. But to the point that you made, it really reduces the competitiveness in the landscape of health insurance broadly if this goes through.

JOSH LIPTON: Anjalee, I'm just curious, too. Let's say the deal does go through, what kind of regulatory interest or attention you think that could draw? Would this get the attention of regulators?

ANJALEE KHEMLANI: It's definitely interesting to see. We know that the FTC is big on blocking some of these mega-mergers and definitely looking at them and scrutinizing them right now. What I find interesting is, as I mentioned, the different parts that Humana and Cigna could bring together for their respective focuses.

We've seen in the past big deals sort of get blocked back when the two were in discussions before. It was a result of a fallout of Aetna, Humana, and AmFam at the time, and Cigna talking about mergers when that got blocked by judges then these two started conversations, which eventually fell apart. But it would be interesting to see if, based on their sort of separate focuses, does this deal come through and give Cigna that sort of full vertical integration, including Express Scripts, their PBM, including pharmacy benefits? And then the provider side from Humana, does that give them the whole picture to give them that platform? Or does it fall through because of the current landscape and just sort of a lot of focus from the FTC? Really waiting to see if what happens.