The Health insurer, Humana Inc. considers selling itself reflecting an attempt to cope with the pressure of cost cuts that the Affordable Care Act is generating.
The sale of Humana could trigger further mergers in the health care industry as the big health insurers will find it lucrative to collaborate in order to gain a competitive edge in the industry.
The Louisville based insurer, Humana, administers the private version of the federal Medicare program. The company surely has bright prospects as it commands a powerful Medicare franchise which is growing rapidly as an increasing number of people are opting for Medicare Advantage.
The Wall Street Journal reported that the Aetna Inc and Cigna Corp are among the possible bidders for Humana. It was earlier reported that the company is working with Goldman Sachs Group Inc. on the process.
The company's shares rose 20% to $214.65, an all time high as the Wall Street Journal reported news of the talks. However, even before the Wall Street report, Humana's shares had been doing well and had risen 42% over the past year due to the development of a positive outlook about the Medicare business's growth prospects and also because of the speculation about the potential merger.
Ana Gupte, analyst at Leerink Partners explained that being part of a bigger company could help Humana's flagship Medicare Advantage health insurance and individual insurance businesses if it negotiates better contracts with doctors and creates more competitively structured networks of providers.
However, the merger could face certain hurdles. Andre Barlow, a veteran of the Justice Department stated," Humana is going to be selling itself to another mega player and the antitrust division has shown itself to be interested in scrutinizing mega mergers. The deal could be met with some resistance". He informed that the Justice Department will scrutinize if the deal would have a monopoly in any metropolitan area.