In what could potentially be the largest merger announced in 2023, health insurers Cigna and Humana are said to be engaged in discussions, according to a source familiar with the matter. This potential merger aims to create a company with enough scale to rival industry giants UnitedHealth Group and CVS Health.

Cigna brings to the table its significant pharmacy benefit unit, Express Scripts, which specializes in managing prescription drug plans. Alongside this, Cigna boasts strength in the commercial insurance sector. On the other hand, Humana holds the number two position in the rapidly growing market for Medicare Advantage plans, which cater to healthcare management for individuals over the age of 65 or with disabilities.

The last wave of consolidation in the health insurance industry was primarily driven by the Affordable Care Act, a national healthcare reform law enacted in 2010. The law expanded individual insurance options and enhanced government Medicaid coverage for lower-income individuals.

Notably, both Cigna and Humana were involved in previous attempts at mergers that were halted by legal challenges. In 2016, the U.S. Justice Department filed lawsuits against the proposed acquisitions of Cigna by Anthem (now Elevance Health) and Humana by Aetna, citing concerns of reduced competition and higher prices for consumers. Ultimately, Aetna was acquired by CVS Health.

The potential merger of Cigna and Humana comes as health insurers face rising medical costs due to postponed procedures during the pandemic and pressure on reimbursement from the U.S. government. In line with these challenges, Humana announced in February its intent to sell its commercial business while retaining its Medicare Advantage products. Similarly, recent reports suggest that Cigna is exploring the sale of its Medicare Advantage business.

According to Bernstein analyst Lance Wilkes, should Cigna proceed with the sale of its Medicare Advantage business, antitrust authorities might scrutinize the impact on pharmacy suppliers and pharmacies resulting from the combination of their pharmacy drug benefit management businesses. As one of the country's leading pharmacy benefit managers (PBMs), Cigna's Express Scripts handles drug benefits, while Humana manages drug benefits for Medicare.

Expectations of potential antitrust challenges surround the merger, as echoed by healthcare economist Craig Garthwaite from Northwestern University. However, Garthwaite also believes that a sale of Cigna's Medicare Advantage business could strengthen the prospects of the proposed merger.

As discussions between Cigna and Humana continue, industry observers and regulators will closely monitor the development of this potentially transformative union in the health insurance sector.