Aetna will spend $37 billion to buy rival Humana and become the latest health insurer bulking up on government business as the industry adjusts to the federal health care overhaul.
The proposed cash-and-stock deal, announced early Friday, could make Aetna the nation's second-largest insurer and a sizeable player in the rapidly growing Medicare Advantage business, which offers privately run versions of the federally funded health care program for the elderly and some people with disabilities.
It also would bolster Aetna's presence in the state- and federally funded Medicaid program and Tricare coverage for military personnel and their families.
Hartford, Conn.-based Aetna announced its deal with Humana a day after the Medicaid coverage provider Centene said it will spend $6.3 billion to buy fellow insurer Health Net. That deal would help Centene expand in the nation's biggest Medicaid market, California, and give it a Medicare presence in several western states.
The federal health care overhaul is expanding Medicaid coverage in several states as it attempts to provide health coverage for millions of uninsured people. Meanwhile, Medicare Advantage has seen its total enrollment triple over the past decade to 16.8 million people.
"Government markets are the most rapidly growing aspect of the system," said Dan Mendelson CEO of the market research firm Avalere Health.
Aetna's purchase price for Humana includes a combination of cash and stock worth about $230 per share.
The combined company may not retain its title of second-largest insurer for long. Health insurers have been pushing to consolidate for weeks.
Blue Cross-Blue Shield carrier Anthem went public late last month with an offer of more than $47 billion for another insurer, Cigna. Cigna rejected that deal, but The Wall Street Journal, citing anonymous sources, reported Thursday that the companies were still talking.
Health insurers see several advantages to combining. These multi-billion dollar deals offer an infusion of new business at time when growth has slowed in the biggest part of their business, employer-sponsored health coverage. Big deals also allow companies to quickly diversify their products and cover more territory. They also improve their technology and can ultimately save money by combining back-office functions of two companies.