Walmart Seeks to Buy Humana: Good Idea? Walmart the Godsend?

Walmart is in negotiation with Humana. There is a range of options, including a direct buyout.

Walmart Inc. is in preliminary talks to buy insurer Humana Inc., according to people familiar with the matter, a deal that would mark a dramatic shift for the retail behemoth and the latest in a recent flurry of big deals in health-care services.

It isn’t clear what terms the companies may be discussing, and there is no guarantee they will strike a deal. If they do, the deal would be big: Humana currently has a market value of about $37 billion.

Should there be a deal—and should regulators and shareholders bless it—it would transform Walmart overnight into one of the nation’s largest health insurers. It would immerse the company in a complicated industry, one that continues to evolve eight years after the Affordable Care Act was enacted and as Washington remains deeply divided over health-care policy.

The talks come as health-service providers are rapidly pairing off and retailers—particularly pharmacy chains—are looking to diversify and bulk up in the face of the competitive threat from e-commerce giantAmazon.com Inc.

In December, CVS Health Corp. agreed to buy Humana rival Aetna Inc.in a $69 billion deal aimed at allowing the drugstore-chain to capture more of what consumers spend on health care. In March, health insurer Cigna Corp. agreed to buy Express Scripts Holding Co. , the biggest administrator of prescription-drug benefits in the U.S., for $54 billion.

Walmart has a vast pharmacy business, with locations in most of its roughly 4,700 U.S. stores and in many of its Sam’s Club warehouse locations. Humana is a Medicare-focused insurer that could deepen Walmart’s relationship with a key demographic—seniors—at a time when the retailer is being threatened by Amazon on several fronts.

Humana, which had $53.8 billion in revenue last year, is the second-biggest provider of the private Medicare plans known as Medicare Advantage. Humana has about 17% of the Medicare Advantage market, according to a tally by analysts at Wells Fargo, with about 3.5 million participants. Medicare is viewed as a growth engine in the insurance industry, as the baby boomers age into the program.

Many of the biggest health insurers are pairing up with others outside their industry to create behemoths with a far larger role in the health-care sector after two attempted health-insurance mergers were blocked in early 2017 by courts on antitrust grounds: Aetna-Humana and Anthem Inc. -Cigna.

Good Idea?

My simple question has many possible answers. It does not explain what I am after.

Good idea for whom? Shareholders, bondholders, Consumers?

I am concerned about the consumer. If a merger would lower costs for the consumer, I wholeheartedly endorse the merger.

I believe it will, but I am not positive it will.

Going one step further, I would like to see Walmart start competing directly with doctors and hospitals for all kinds of non-emergency medical services.

It would not bother me one iota if Walmart operated as a bank, again assuming it would lower fees. ATM costs could drop quickly if we were to see such a move.

Walmart the Godsend?

Unlike many, I cheer Walmart and Amazon for bringing lower prices.

For example Barry Ritholtz moans How McDonald's and Wal-Mart Became Welfare Queens.

American fast food workers receive more than $7 billion dollars in public assistance, says Ritholtz.

He resents those workers being partially subsidized. If Ritholtz would bother to think, he would understand that Walmart and McDonalds provide hundreds of thousands of jobs that would not otherwise exist at all.

Ritholtz's "simple solution" is to hike the minimum wage. Of course the price of food at fast food restaurants, already ridiculously overpriced would have to rise even more. Fewer stores would be build and fewer people would be employed.

Not once I have seen or heard Ritholtz address the fact that the Fed is hell-bent on forcing up prices in a technologically deflationary world.

One-Way Titanium

Ritholtz perpetually provides superficial non-solutions with total disdain for the real economic problem.

The problem is not the lack of a minimum wage, but how far the dollar goes. I have pointed this out many times before, but Ritholtz has a mind encased in one-way titanium. Bad ideas transmit freely, but sound economic ideas cannot enter or leave.

Mike "Mish" Shedlock

Comments (8)
No. 1-8
tedr01
tedr01

Probably a good move for consumers. Medicine needs competition just like any other for profit business does. Thanks for posting this Mish. Happy Easter.

Tony_CA
Tony_CA

I see this as ultimately less competition not more.

Mike Mish Shedlock
Mike Mish Shedlock

Editor

My unambiguous uncertainty: "I believe it will, but I am not positive it will."

thimk
thimk

this is a sign that walmart is maxed out on top line revenue growth. This recent merger mania may create a crop of oligopolies with major pricing power . and then there is mom and pop.

Carl_R
Carl_R

Anyone that doesn't see that the minimum wage benefits big business and hurts low income workers is hard to take seriously. Raise the minimum wage far enough, McDonald's will still be there, but with kiosks and robotic cooks, while their smaller competitors will be gone. That would makeMcDonald's far more profitable than they are now, and significantly reduce employment opportunities for low income workers.
As for a Walmart-Humana combo? I have no idea, so my inclination is, let's do it and see what happens.