Matt Rourke / AP

Now that the federal government has quashed the two health insurance mega-mergers — Aetna's $37 billion acquisition of Humana and Anthem's $54 billion deal for Cigna — Wall Street analysts are anticipating that Cigna and Humana will pursue their own merger.

Why it matters: If they combined, the result would be a giant insurer of employer and Medicare plans with $84 billion of annual revenue. Cigna has said it is broadly on the hunt, and Humana has shown it is willing to be acquired. The big question mark is antitrust scrutiny, which investors believe the two insurers can shake off because they have less overlap than their previously failed deals.

Cigna spurs speculation: Cigna got a group of investors together last week in New York City and gave the impression that making a big transaction isn't a matter of if, but when. "The company does not have a track record of sitting on excess capital," CEO David Cordani said.

Financial analysts from a handful of investment banks believe a Cigna-Humana combination may happen for several reasons:

  • Money: Cigna has cash (a minimum of $7 billion) and a low level of debt. If Humana commands $37 billion again, Cigna would have no problem pulling the trigger. Cordani also said at the investor meeting that the legal battle with Anthem wouldn't affect any transactions this year.
  • History: Cigna actually bid first on Humana during the 2015 deal-making, but lost to Aetna.
  • Medicare: Humana is dominant in Medicare Advantage, the alternative to traditional Medicare run by insurers, as well as Medicare's prescription drug program. Cigna has a smaller Medicare Advantage business, which just got off federal sanctions for inappropriately denying care and prescription drugs. Medicare is one of Cigna's top priorities, and the company wants to have a bigger footprint there as more baby boomers retire from their job-based health plans.
  • Remedies: If Cigna and Humana wanted to combine, Cigna would likely have to sell most of its current Medicare Advantage plans. Many other companies would gladly scoop up Cigna's Medicare plans.

Nothing's been proposed, and the companies don't comment on speculation. A couple of factors that could work against the deal:

  • Scrutiny: Hospitals, doctors and consumers likely wouldn't be happy with a Cigna-Humana merger, just like they opposed the other deals. And Cigna may not want to bother with another protracted discussion with the Department of Justice.
  • Other options: Cigna could just as easily pursue WellCare Health Plans or smaller regional Medicare plans, and complete those deals in presumably less time.

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