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00:00WETTEST MONTH ON RECORD. IT HAS BEEN A BUSY COUPLE OF DAYS FOR HEALTH INSURANCE INVESTORS. SIGNAL REJECTED TO BUY AND THUMB FOR $175 A SHARE. LAST MONTH, THEY WERE BOTH SAID TO BE TAKING OVER HUMANA, OR INTERESTED IN IT. AND HUMANA IS INTERESTED IN EITHER CIGNA OR AT NOW. -- AETNA. ERIK: WE TALKED THIS OVER WITH OUR BLOOMBERG ANALYSTS. WHY NOW? >> HEALTH INSURERS HAVE BEEN DORMANT FOR THE PAST COUPLE OF YEARS. THE COST OF HEALTH INSURANCE IS ACTUALLY GOING TO RISE THIS YEAR. THE IMPACT OF THE AFFORDABLE CARE ACT IS WANING ON THEM IN TERMS OF COST. THEY HAVE A LOT OF CASH NOW. IT MAY BE A GOOD TIME FOR THEM TO SAY WE HAVE PAID FOR A LOT OF THIS IN TERMS OF TAXES AND NOW WE HAVE THE ABILITY TO DO SOME TRANSFORMATIVE DEALS. OLIVIA: THE CONSOLIDATION IN THE INDUSTRY, WE SHOULD NOT READ THAT AS A RESPONSE TO NEW REGULATION FROM OBAMACARE BUT RATHER AS A RESPONSE TO THE FACT THAT THERE PROBABILITY HAS CHANGED NOW THAT THEY HAVE MORE CASH. >> YES. I THINK THEY HAVE MORE PROBABILITY. UNITED HEALTH HAS SHOWN THE IMPACT OF THE AFFORDABLE CARE ACT IS LESS OF THIS YEAR THAN THE PRIOR TWO YEARS. WE HAVE ALSO SEEN THAT THEY DO HAVE MORE OF A WILLINGNESS TO GAIN SCALE, WHICH IS PARTLY DUE TO THE AFFORDABLE CARE ACT. ERIK: AMONG ALL OF THESE INSURERS, AND PERHAPS BUSIER NOT MENTIONED, CAN YOU SAY WHO IS IN THE BEST POSITION TO BE A CONSOLIDATOR? JASON CAO THEY ARE IN DIFFERENT -- JASON: THEY ARE IN DIFFERENT POSITIONS DEPENDING ON THE COMPANY. -- IS ONE OF THE KEY TARGETS BECAUSE THEY HAVE ONE OF THE BEST PLANS FOR THE GROWING MEDICARE POPULATION. CIGNA , THEY HAVE ONE OF THE HIGHEST OPERATING COST MARGINS IN THE INDUSTRY BECAUSE THEY HAVE A STRONG UNDERWRITING DISCIPLINE. IT DEPENDS ON WHAT YOUR STRATEGY IS IN THE MARKET AND WHAT YOU'RE INTERESTED IN. ERIK: I AM NOT SURE WHAT PERSPECTIVE IT WOULD BE, BUT IF YOU WERE LOOK -- IF YOU WERE TO LOOK AT THE INSURANCE INDUSTRY, DOES IT REQUIRE CONSOLIDATION TO BE HEALTHIER OR IS IT FINE THE WAY IT IS? JASON: THE MORE SCALE YOU CAN GET, YOU CAN HELP THESE INSURERS GET BETTER PRICING POWER IN THE STATES THEY OPERATE IN. ERIK: THEY MAY LOSE THE UNDERWRITING DISCIPLINE AND THE PROCESS. JASON: THEY COULD. BUT THE QUESTION IS ALSO REGULATORY. OLIVIA: DOES IT SHAKE OUT WELL FOR THE CONSUMER AND THEY HAVE GREATER PRICING POWER, DO I PAY A LOWER PREMIUM? JASON: YOU HAVE WOULD HAVE FEWER CHOICES IN MANY STATES AND HIGHER PREMIUMS. OLIVIA: WHICH IS HARD TO BELIEVE BECAUSE YOU HAVE YOUR CHOICES ALREADY. >> YES. THERE'S ALSO THE CONCERN WE ARE MOVING TO FEWER PAYERS. ERIK: WHAT DOES THAT MEAN REGARDING DOJ APPROVAL AND OTHER REGULATORS? >> UNITEDHEALTH GROUP, THEY HAVE HAD TO DIVEST CERTAIN PRODUCT LINES AND OTHER DEALS. WE HAVE NEVER SEEN DEALS OF THIS SCALE. WE ARE TALKING $40 BILLION PLUS. TO GET THAT KIND OF SCALE, WE WOULD SEE CONCERN AND POTENTIAL SALES OF PRODUCT LINES IN CERTAIN STATES. OLIVIA: I SAW IN SOME ANALYST NOTES OF THE FACT THAT ANTHEM HAS A RELATIONSHIP WITH BLUE CROSS BLUE SHIELD. THAT COULD BE ON THE TABLE IF THEY MERGE. ERIK: IS IT POSSIBLE THERE ARE ACTIVISTS DEFINED THE SCENES SHAKING THE TREE? >> IT COULD BE THAT AND IT COULD ALSO BE -- THERE ARE THOSE WHO WANT MORE VALUE FROM THE SHARES. BUT THE SHARES HAVE OUTPERFORMED SOME OF THE OTHER SECTORS VERY WELL DUE TO LOW COSTS. OLIVIA: THAT RAISES QUESTIONS ABOUT DEAL PRICE. WE ARE SEEING A HUGE UPTICK IN M & A ACROSS SECTORS. ERIK: THANK YOU.

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Anthem, Cigna, Humana Stir Up Health Insurance M&A

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