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Humana's Stock Is Still Falling Amid Merger Worries

Louisville-based health insurer Humana’s stock continues to plummet with news last week that the Department of Justice is seriously questioning its potential merger with Aetna, the country's second-largest insurer.

The $37 billion deal has been in the works for a year and would consolidate two major players in the Kentucky health care market, affecting Medicaid and Medicare plans.

Humana stock has been on a downtrend recently. On June 13, Humana stock ended at $184.59 per share. At close Tuesday, the stock price was $154.71. The stock was originally valued at $230 when the deal was agreed upon last year.

Humana has 3.2 million Medicare Advantage members, which made the buy initially attractive. But on Friday, Humana shares fell nearly 10 percent following a report that the Department of Justice is concerned that the deal would take choice away from seniors in Aetna and Humana Medicare Advantage plans.

Aetna is now reportedly trying to sell off its Medicare Advantage plans to get federal approval.

Adding to the pressure is a potential merger between Cigna and Anthem, as well as United Healthcare’s exit from the exchange markets in several states. According to Curt Kemper, equity research analyst at Louisville-based Hilliard Lyons, reducing the insurance market to three major insurers is fueling DOJ concerns -- and stockholders' response.

“With only three companies offering health insurance, investors are appropriately considering that the DOJ may block this one,” Kemper said.

Most of the health insurance business in Kentucky is with private employers, which are not regulated by the state but instead the federal Department of Labor. And a merger that reduces options would also be significant for employers.

In 2014, 46 percent of Kentuckians had employer-based insurance, while 23 percent were covered by Medicaid, 17 percent under Medicare, 6 percent had individual plans on exchanges and plans, according to the Kaiser Family Foundation.

In 2013, Aetna bought a local Medicaid managed care plan, which usually pays Medicaid providers a lump sum to take care of patients instead of piecemeal. Julia Costich, a professor of health management and policy at the University of Kentucky, said because Aetna is now a larger player in Kentucky, the deal would mean less choice for policyholders.

“I think it’ll be a bit confusing for people, and it’ll take away an option,” Costich said, noting that Humana is Louisville’s second-largest employer, with more than 12,000 employees.

Aetna has said it would make Louisville the headquarters for its Medicare, Medicaid and Tri-Care business. But there are still concerns.

“The Humana workforce, which is significant in Louisville, has been apprehensive because as soon as you consolidate – one of the reasons to consolidate is economies of scale -- means cutting the workforce,” Costich said.

In February, Kentucky’s insurance commissioner approved the deal. In 2009, a report from the University of Louisville College of Business said the business totals about $1.2 billion in salaries and wages in the Louisville region. Companies such as Meiners Electric, software company Prosoft and advertising firm Doe Anderson rely on Humana’s business.

Lisa Gillespie is WFPL's Health and Innovation Reporter.

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