Walmart and Humana, a merger or joint venture?

According to a WSJ article, the two companies are in talks on a merger.

What a lot of people don’t realize is that both companies already have a relationship.

According to the NY Times, since 2010, they have sold a co-branded prescription drug benefit (PDP) for Medicare recipients, which offers savings on certain drugs bought at Walmart’s pharmacies. The two companies are now discussing how to expand that partnership in ways that would help drive more traffic to Walmart’s 4,700 United States stores, while increasing Humana’s enrollment.

And this strategy makes sense. Consider that Walmart’s demographic skews towards baby boomers and seniors. According to the graphic below, almost 50% of a shopper survey done by Kantar Retail Shopper Scape fit either in the Baby Boomer segment or Senior segment. ALDI in the graph happens to be a Walmart brand as well!

Generation Walmart
Source. Kantar Retail Shopper Scape

That aligns strongly with Humana’s cash cow – Medicare Advantage – as the ranks of baby boomers swell.

To drive enrolment, Humana needs that traffic and continuous enrolment in Medicare Advantage.

According to Modern Healthcare, Humana divested Concentra Clinics – a nationwide urgent care clinic that it previously acquired. At the time of the divesture in 2015, the CEO was quoted “Though Concentra’s operations did not ultimately align with Humana’s strategy as well as we had originally anticipated, we believe Humana and Concentra have gained valuable insights into consumer behavior over the past several years that will serve us both well moving forward,”

Due to demographics, a Walmart partnership may be better than running scores of urgent care clinics AND driving traffic (Medicare Advantage or PDP plan) to them. Evidence may indicate that urgent care clinics skew towards an urban younger population which runs counter to Medicare/PDP Plans and Walmart’s segment population.

Medicare Advantage Startup Clover Health posts $22M loss

Digital health company, Clover which offers insurance to seniors in New Jersey, and now to parts of Georgia, Pennsylvania and Texas posted a $22M loss in 2017.

The company serving the lucrative and stable Medicare Advantage market made revenue of $267M that year according to Bloomberg

It only takes a quick reading of the chart from the Kaiser Family Foundation below to note why this market is lucrative. The Medicare Advantage market is now 33% of Medicare – that’s 19 million people served from just 7 million people in 1999.  Average premiums are $36 per person.

Medicare Advantage Enrolment

With almost 50% of the market dominated by United Health and Humana per Figure 6 KFF,

Enrolment by Insurer MA.png

 

Clover has some work to do. On the immediate list for the firm include focusing on it’s sickest customers – to drive down ER costs/use, getting it’s Medicare Stars Rating up towards the perfect ‘5’ score and negotiating narrow-er networks.