Now that judges have blocked both proposed mergers between America’s health insurance giants, Anthem or Cigna may target Humana, currently courted by Aetna, as a possible acquisition target, according to an industry analyst.

Together, the four companies have hoarded nearly $40 billion in cash and equivalents.

U.S. District Judge John D. Bates blocked Aetna’s planned acquisition of Louisville-based Humana in late January. Last week, U.S. District Judge Amy Berman Jackson also blocked Anthem’s proposed acquisition of Cigna. Judges said the mergers would significantly reduce competition among the insurers and harm consumers.

The companies are still deciding whether to appeal the rulings. Aetna said it would decide by 11:59 p.m. Wednesday how to proceed.

Some of the companies have been hoarding some serious cash to fund the transactions. For example, in addition to about half an Anthem share, Anthem was expected to pay Cigna shareholders about $103.40 in cash for each outstanding Cigna share, or about $26.6 billion as of Dec. 31.

Meanwhile, Aetna’s cash portion of the Humana acquisition was valued at nearly $19 billion.

As of Dec. 31, Anthem and Cigna were sitting on about $5.7 billion in cash, while Aetna’s war chest has swelled to $21 billion in cash and short-term investments, up from $5.5 billion at the end of 2015.

Given the sizable coffers, the insurers may look for other acquisition opportunities if the initial deals fall apart.

“Humana may be a target, once again,” according to Bloomberg. “Cigna or Anthem may make a bid for the Louisville, Kentucky-based company, which specializes in the fast-growing business of selling private health plans for the elderly, said Ana Gupte, an analyst at Leerink Partners. Cigna could also bid for WellCare Health Plans Inc., she said.”

Humana itself, of course, could seek acquisition targets. At the end of last year, the Louisville company was sitting on nearly $14 billion in cash and short-term investments.

Aetna, Humana, Cigna and Anthem are sitting on nearly $40 billion in cash.

Another possible action, according to Sarah James, an analyst with Piper Jaffray, would provide company executives with a medium-term benefit and shareholders with an immediate one.

“The four deal stocks have been hoarding cash for 18 months, and now that the rulings have been announced, we believe the companies will look to deploy the capital,” James said in a note to clients, according to Bloomberg. “The companies will most likely favor share repurchases.”

With share buybacks, companies use cash to buy back their own shares, which increases the share price but also reduces the number of shares outstanding, which increases earnings per share. And that’s good for executives whose compensation may be tied, at least partially, to financial measures such as EPS.

Elizabeth Munnich

Regardless of whether the initial deals ultimately fail, a University of Louisville professor has told Insider that the industry pressures that are pushing health care providers and health insurers toward consolidation will remain.

Hospital systems have been merging for years and at an even faster pace since the Affordable Care Act, aka Obamacare, because they are facing growing costs from caring for sicker patients and administrative challenges related to care coordination and the sharing of electronic medical records, said Elizabeth Munnich, assistant professor of economics at the University of Louisville.

The ACA has provided incentives for health care providers to offer better care at a lower cost, she said. For example, Medicare pays providers a lump sum for a procedure, such as a knee replacement. To keep costs low — and to pocket as much of a profit as possible — or to incur as little of a loss as possible — the provider will want to make sure that the procedure goes well so that the patient can be released as soon as possible and does have to be readmitted. How much money the provider gets paid for such a procedure by an insurance company is negotiated between the provider and the insurer.

As hospital chains have gained market share through mergers and acquisitions, they have been able to use their size to exact from insurers higher reimbursement rates. To counterbalance hospital systems’ increasing bargaining power, insurance companies have been on a merger tear as well, to use their increasing bulk to force hospitals to accept lower reimbursement rates.

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Boris Ladwig
Boris Ladwig is a reporter with more than 20 years of experience and has won awards from multiple journalism organizations in Indiana and Kentucky for feature series, news, First Amendment/community affairs, nondeadline news, criminal justice, business and investigative reporting. As part of The (Columbus, Indiana) Republic’s staff, he also won the Kent Cooper award, the top honor given by the Associated Press Managing Editors for the best overall news writing in the state. A graduate of Indiana State University, he is a soccer aficionado (Borussia Dortmund and 1. FC Köln), singer and travel enthusiast who has visited countries on five continents. He speaks fluent German, rudimentary French and bits of Spanish, Italian, Khmer and Mandarin.