It looks like the consolidation in the health care industry is set to continue. According to knowledgeable sources who spoke to the Wall Street Journal, health insurance giant Anthem is in advanced negotiations to close a long-awaited deal for rival Cigna Corp. The transaction is expected to be valued at more than $48 billion, and together with another proposed merger will result in the five largest U.S. health insurers shrinking to just three.

Cigna

The primary issues that were holding up the deal, including price and the role of Cigna CEO David Cordani, have now been solved, according to the people familiar with the matter.

The sources say Indianapolis-based Anthem will pay around $188 a share for Cigna, based Bloomfield, Connecticut. The merger between the two companies could be announced by late Thursday afternoon. The WSJ sources note, however, that the deal not been completely finalized, and he timing could be delayed or the  terms of the agreement changed.

Neither Anthem and Cigna responded to requests for comments on the news

More on potential Anthem – Cigna deal

Anthem has slightly improved on its previous cash and stock offer of $184 per share and will pay somewhere around $188 per share for its rival, and apparently Cordani has agreed to let Anthem CEO Joseph Swedish be the leader of the combined firm, although details are still being negotiated.

Analysts point out that the health insurance sector has been in consolidation mode since Obamacare passed in 2010, claiming that economy of scale would help them negotiate better prices with medical providers and reduce administrative costs.

Healthcare providers are understandably worried that further consolidation will decrease competition in the insurance industry. leading to higher prices for consumers.

Of note, antitrust regulators will be taking a close look at just how combining health insurers will impact competition in all types of insurance including Medicare, Medicaid, individual insurance, commercial insurance for small/medium businesses the large employer plans..

Anthem noted almost a month ago it had put several offers for Cigna on the table, but a deal had been held up due to differences over leadership and corporate governance. Cigna also noted it was worried that other members of the Blue Cross Blue Shield Association might object to the merger.

In a research note SIG analysts stated:

We believe that the DOJ will largely defer to the states for any Medicaid overlap issues. Medicaid pricing is determined by the
states (plans are price takers), making antitrust issues a lessor concern. The states dictate overlap/market share based on their preference for market concentration, and any merger activity will likely result in a direct negotiation between the plans and states.

That being said, we estimated the potential revenue impact of overlapping market share assuming that in a worst-case scenario the combined plan would divest the enrollment of the plan with lower enrollment.

We estimate that the worst-case scenario exposure for AET/HUM is $562 mln and for ANTM/CI is $139 mln. We estimate the same impact whether or not the states consider multiple deals concurrently as there is no state where all four plans operate Medicaid plans. The results of the Medicaid overlap analysis are included in Figure 7 – the table includes only the states where we estimate enrollment exposure exists.