Aetna Plans To Buy Humana For $37 Billion

July 03--HARTFORD -- Aetna will buy Humana Inc. for $37 billion in a merger of two of the top health insurers in the nation, under a deal announced early Friday.

Mark Bertolini, Aetna's CEO, will lead the combined company, whose headquarters will remain in Hartford.

Under the agreement, Aetna will keep a "significant" presence at the Humana headquarters in Louisville, Ky., making it home to the combined companies' Medicare, Medicaid and TRICARE businesses.

The merger announcement forecasts $1.25 billion in operating cost reductions. How much of those efficiencies will require job reductions is unknown. Aetna has 6,100 employees in Connecticut, the most of any health insurer in the Insurance Capital.

"The combined entity will help drive better value and higher-quality health care by reducing administrative costs, leveraging best-in-breed practices from the two companies," Aetna and Humana said in a joint announcement.

The companies predicted Aetna's profits would begin to rise in 2017 from benefits of the acquisition. The deal -- if it is approved by the U.S. Department of Justice -- is expected to close in the second half of 2016.

Aetna and Humana said reducing operating costs would allow the combined companies to compete with other insurers by offering more cost-effective products.

The cash and stock deal will be result in a share price of $230 for Humana stock, a 23 percent premium on Humana's price at the end of the trading day Thursday. Humana shareholders will receive $125 in cash and 0.8375 Aetna common shares, and will end up owning about 26 percent of the combined company.

The 25-cent dividend promised to shareholders on July 31 will go forward, and Aetna intends to continue to pay quarterly dividends before the deal closes, but none will be higher than 25 cents, the announcement said.

At the end of May, the Bloomberg news service reported that Hartford-based Cigna had been interested in acquiring Humana. Since then, Cigna has become an acquisition target for Anthem, the nation's second largest health insurer. Cigna has publicly rejected that bid.

Humana is an attractive addition to other giant insurance companies because of its strength in Medicare prescription plans and Medicare Advantage plans. The retirements of the baby boomers are swelling Medicare's rolls.

According to a Bloomberg analysis, Aetna now gets 24 percent of its revenue from Medicare business. The combined company would get about 47 percent of its revenue from Medicare and Medicaid.

Humana reported at the end of April that it projected 2015 Medicare Advantage membership growth at 13 percent and Medicare drug prescription policy growth at 12 percent.

The Wall Street Journal reported that Goldman Sachs health-insurance analysts, estimated that about 13 percent of the new company's Medicare Advantage enrollment could be at risk of divestiture after the merger.

About 31 percent of Americans over the age of 65 are covered by Medicare Advantage rather than traditional Medicare, according to the Kaiser Foundation.

Medicare Advantage covers doctors' visits and hospitalization, like traditional Medicare, and usually also includes prescription drug coverage, which regular Medicare clients buy through Part D. Medicare Advantage plans may offer vision, dental or wellness programs, as well. Medicare Advantage customers pay a premium for Medicare Advantage in addition to the Medicare premium for outpatient services. It is able to provide extra coverage by controlling costs through managed care.

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