Last Thursday, the Wall Street Journal reported that Walmart was in talks to acquire the health insurance company Humana, currently valued at around $37 billion, raising the prospect of another merger with transformative implications for the benefits industry. Both companies are keeping mum about the possible deal, though Bloomberg heard from a person familiar with the talks that the most likely outcome was a closer partnership between the retailer and the insurer, which already collaborate on providing prescription drugs for US senior citizens insured through Medicare (Humana is the second-largest provider of government-supported private Medicare Advantage plans in the US).
Either way, a closer partnership between these giants could have some major implications for the US health insurance market, especially in combination with the other changes that are going on. The pharmacy chain CVS announced in December that it had agreed to purchase the insurer Aetna for $69 billion as part of an effort to transform its 9,700 retail drug stores into “health care supermarkets” complete with wellness clinics for preventive care (That merger was approved by shareholders last month but has yet to pass muster with antitrust regulators in the Justice Department).
A similar move by Walmart would be groundbreaking, given the big-box retailer’s massive presence throughout the US. Even a deal to provide health care for Walmart’s 1.5 million US employees would be significant. Walmart becoming a health care provider would make a big difference, Tracy Watts, senior partner at Mercer, tells Employee Benefit News reporter Kathryn Mayer:
“I would think whatever happens with the deal, Walmart would leverage its relationship with Humana to provide primary care or extend convenience care to its employees in addition to the general public,” Watts says. She also predicts the retailer will leverage its onsite care locations to provide a convenient, cost-effective way for employees and others to receive basic treatments. “For employees to get healthcare from Walmart in those rural locations can be a really good thing,” she says.
Providing healthcare for its workers would not only help Walmart address rising healthcare costs, but also could help the retailer retain and recruit workers in a tightened labor market.
A Walmart-Humana deal would also put pressure on other employers to provide onsite care or lower prescription drug costs, Mayer adds. It could also spur similar mergers or partnerships between the remaining insurance companies and other major retailers.
If the two companies do make a deal, each would be responding to a threat within its industry that a merger or partnership could help, Bloomberg’s Zachary Tracer points out:
Amazon.com Inc. has taken direct aim at the giant retailer by siphoning customers out of its stores. Humana’s rivals are striking deals to make them one-stop health superstores with insurance, drug coverage, pharmacies, clinics and doctors. A deal or joint venture between Humana and Walmart — already longtime partners — might help defend against those competitive threats. …
Walmart would be able to steer Humana’s millions of customers to the chain’s stores, create new medical and wellness services in its millions of square feet of retail space, and take a bigger slice of the U.S.’s $3.5 trillion in health spending. Humana would get access to thousands of brick-and-mortar locations to provide low-cost health services, fitting into the insurer’s strategy of providing more medical care directly to its members.
Potentially sweetening the pot for Walmart, a deal Humana made last year to acquire Kindred Healthcare’s home health, hospice and community care businesses was just approved by Kindred shareholders. That acquisition, Forbes’s Bruce Jepsen explains, “is designed to further the insurer’s population health strategy to keep patients out of the hospital and cared for in lower-cost outpatient settings,” as well as to counter moves by Humana’s rivals to partner with health care providers.
News of this possible deal comes as other major employers are exploring new avenues for providing health services to their employees in an effort to hold down rising health care costs. Amazon, Berkshire Hathaway and JPMorgan Chase recently announced that they were forming a non-profit entity for that purpose, which is expected to focus on technological solutions, data sharing, and its participants’ bargaining power as large employers. Apple, meanwhile, is establishing a network of clinics near its headquarters in California to provide primary health care services to employees, where the company will also test some of the consumer-facing health products it is designing. Still other employers are eschewing traditional group health insurance in favor of self-funded or value-based care plans.