Insurers may alter course to target mid-size acquisitions

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In wake of the Justice Department’s decision to file suit against mergers that would reduce the five largest insurers to three, the companies may start eyeing deals with smaller companies to satisfy shareholders, according to Reuters.

U.S. Attorney General Loretta Lynch said the proposed Aetna-Humana and Anthem-Cigna mergers would “drastically constrict competition in a number of key markets,” FierceHealthPayer reported. And the DOJ’s case against the insurance behemoths “will be very persuasive,” antitrust lawyer David Balto recently told FierceHealthPayer in an exclusive interview.

The DOJ is on ”high alert” right now, Leerink Partners’ Ana Gupte tells Reuters. Proposed deals will incur intensive regulatory examination until the election is over, when health insurance consolidation will be less politically charged, a Humana shareholder adds.

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Potential targets for big five insurers are Centene Corp., Molina Healthcare and WellCare Health Plans. Molina and Centene both have a significant presence in the market for private Medicaid plans. Anthem is said be very interested in expanding its presence with government-sponsored products. Still, even small mergers could be difficult to get past regulators.

Many of the players in this market, such as Centene, do not see themselves as likely acquisitions. Centene sees itself as an acquirer, having acquired Health Net for $6 billion earlier this year to become the largest Medicaid managed care firm in the country.  

Collectively, Aetna, Humana, UnitedHealth, Cigna and Anthem are sitting on more than $19.8 billion in cash and cash equivalents, as of the end of 2015. If an acquisition cannot be completed, some $14 billion of this cash could go toward share buybacks to quell shareholders’ appetites, the Reuters article adds.

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