If big health deals are a go, why not Anthem-Humana?

Many also believe the CVS-Aetna and Cigna-Express Scripts deals have a greater chance of success after a judge gave a go-ahead to AT&T-Time Warner.

(Bloomberg Opinion) -- The market believes that two vertical health-care mega-mergers — CVS Health Inc.’s purchase of Aetna Inc. and Cigna Corp.’s deal for Express Scripts Holding Co. — have a greater chance of success after a judge gave AT&T Inc.’s purchase of Time Warner Inc. the go-ahead late Tuesday.

That’s not an unreasonable leap. I’m going to take a bigger one, and it’s about Anthem Inc. In spite of the fact that its attempted purchase of Cigna dissolved into lawsuits and sniping under government scrutiny last year, I think there’s a better chance today that the Anthem will consider a bid for another rival health insurer: Humana Inc.

The principal motivation is that the market is probably right about Cigna=Express Scripts and CVS-Aetna. True, Tuesday’s ruling was narrow, and health-care mergers sometimes get extra scrutiny. But there’s broad consensus that the administration’s ability to challenge vertical mergers has been substantively weakened.

If these deals go through, Anthem and Humana would have to compete with three major rivals that would all have the advantage of being integrated with a massive pharmacy-benefit manager (PBM). As of now, there’s just one in that camp: UnitedHealth Group Inc.

307353432_1-7.jpg Humana, which saw a potential purchase by Aetna derailed by the government last year, offers a possible lifeline. It would give Anthem the potential to become a larger player in the rapidly growing Medicare Advantage market, it has a PBM that would bolster Anthem’s nascent effort to build one of its own, and it’s made diversifying investments in health-care providers. Those factors could convince Anthem to gamble that constraints on merger enforcement or newfound Trump administration skittishness might extend to a horizontal deal.

It would be a risky move for sure, considering recent history. But President Trump doesn’t have quite as large a political bone to pick in this case. The Department of Justice’s antitrust boss literally worked for Anthem as it tried to buy Cigna. And the fact that both companies have been through the antitrust wringer may give them helpful experience for a second attempt.

This deal would create less market concentration than the two rejected insurer mergers. And while the combined company would be the second-largest Medicare Advantage insurer after UnitedHealth, it would have a smaller presence than a combined Aetna and Humana. Also, Humana would have a minimal impact on Anthem’s commercial business, whereas a merger of Anthem and Cigna would have turned it from a giant in that space into a behemoth.

Of course, things could also go the other way. The DOJ could seize on this kind of deal as an opportunity at redemption, having successfully derailed similar mergers. A judge might not find Anthem’s assurances that it wouldn’t use increased market power to hike prices any more convincing this time around. Perhaps the first experience was so traumatic that one or both companies won't even consider it.

But there isn’t another deal option I can see that would be as appealing or impactful, and any shift in perceived risk and reward could be enough to push Anthem into action.