Anthem will buy Cigna in largest-ever insurance deal. Here's what it could mean.

This story is in progress. Last updated at 9:30 a.m. ET on July 24..

Dan Diamond, Executive Editor

Three weeks ago today, Aetna and Humana announced that they'd agreed to a planned $37 billion merger—the largest-ever deal in the health insurance industry.

It's already been eclipsed.

Anthem and Cigna on Friday consummated their own months-long mating dance, after a series of offers, counter-offers, and a very public spat over who would get to be CEO of the combined company. (Cigna lost.)

The $54 billion Anthem-Cigna merger would create the largest insurer in America by total customers. And if both deals are approved, the nation's Big Five insurers will shrink to a Huge Three.

Listen: Dan, Rob Lazerow, and Rivka Friedman debate why health care dealmaking is on the rise

So … what now?

It's difficult to map what will happen next because we're entering uncharted territory.

Just consider the sheer size of these planned mergers.

When Aetna bought Prudential 16 years ago, becoming the biggest health insurer in America, it was a $1 billion acquisition. And the resulting company had about $27 billion in annual revenue.

These new deals are an order of magnitude larger. Aetna-Humana, for instance, would be a $115 billion company. Anthem-Cigna would have more than $120 billion in annual revenue.

And the implications for health care are tough to figure. The insurers say they'll be able to shave off billions of dollars in administrative costs, lowering the price of health plans for consumers.

But hospitals and health systems say the opposite: They fear that these super-sized insurers will force them to pass more costs onto consumers. Some are worried about the effects on their business; small hospitals are worried about being bullied at the negotiating table. And when I recently spoke to California's insurance commissioner, he lamented that there's already not enough competition in the marketplace.

Insurer mergers vs. hospital mergers

There's evidence to support all of these arguments. It just depends who you ask.

But the key question I had: If these insurer mega-mergers are approved, does it empower hospitals to start striking major deals, too?

After all, the Federal Trade Commission (FTC) has stopped hospitals—again and again—from gaining what they perceive to be too much market power. But in a world with a Huge Three of insurers, wouldn't regulators change their stance on hospitals?

"One would think—if one had a modicum of common sense—that would happen," says David Balto. He's a public interest and antitrust attorney, and a former policy director of the FTC.

But he doesn't think it will make a difference. As we discussed, insurer mergers aren't evaluated based on what they mean for hospital market power, but for what they might mean for consumers.

And it's especially hard to predict what regulators will do because of the government's unique approach to regulating health care.

Notably, the Department of Justice handles insurer mergers, but the FTC handles hospital deals. And the two branches of the government haven't always seen eye-to-eye on health care deals in recent years. (The FTC has been especially aggressive at quashing hospital deal-making on anti-competitive grounds.)

"It's pretty bizarre to have two antitrust agencies," Balto says. "No other country, no other planet has two antitrust agencies."

"And even though these guys are all of one block away from each other, don't assume they talk to each other," he adds.

Of course, any debate about the implications of these deals could be moot: Balto believes that DOJ will block the insurer mergers, citing the potential anticompetitive effects of super-sized health insurers.

And he's not alone in being skeptical.

Health policy analyst John Graham sees evidence that investors are shorting the spread on the Aetna-Humana deal. (Notably, Aetna's stock price has fallen more than 12% since the deal was announced on July 3.)

"This indicates investors believe there is a very significant risk the deal will not close," Graham wrote at FORBES on Wednesday.

One major complication is that both mergers are now happening at once, which will force DOJ to consider them together.

"They've never been faced with mergers of this significance," says Balto. And "when there are two deals of this size, you really end up in a hornet's nest."

M&A—To What End? Five Characteristics of Intentional Strategy

We are in the midst of the most significant period of provider consolidation in the last 30 years.

The most successful M&A deals are focused on delivering a better product to patients and purchasers, rather than insulating the system from competition. Find out what separates these deals from the rest.


Listen to Our Experts

On this week's episode of the Weekly Briefing, Dan Diamond, Rob Lazerow, and Rivka Friedman debated whether the Affordable Care Act is driving a historic wave of health care mergers, review Medicare's new plan to change how it pays hospitals and doctors, and close the show by sharing their "electives."

You can listen to the show here or by clicking on the player below.

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