Opinion: Reasons why Walmart may consider Humana merger
Why would the world’s largest retailer want to buy a health insurance giant? On the surface, there doesn’t seem to be much logic to a deal between Walmart and Humana.
The risks of becoming entangled in the complex U.S. healthcare industry are considerable, especially at a time when Walmart is grappling with the competitive challenges of a rapidly shifting retail market. The hammering out of any agreement — which would be Walmart’s largest ever corporate deal — would, of itself, be an enormous distraction.
Integrating and running the business would be even more challenging. It would mark a significant change of direction for Walmart, which would, overnight, move from being a retailer to a more diversified consumer services company.
Despite the risks, there is some appeal and a bit of logic in a partnership between the two firms.
The U.S. healthcare industry, including insurers, has never been particularly customer-centric. The tendency to overcomplicate options and plans has led to confusion, low satisfaction, and a lack of trust. On top of this poor experience, the industry is riddled with inefficiencies. These things are an anathema to most retailers, particularly so to Walmart.
Therein lies a potential opportunity for Walmart to bring some much-needed focus and discipline to the health insurance industry. However, on its own, this is too vague a notion to act as a catalyst for a deal; other things have to be in play to make the risks of any tie-up worthwhile.
One of these is the potential to use customer data to improve decision making and health outcomes. Like Amazon, which has also sent signals that it wants to disrupt healthcare, Walmart has an in-depth knowledge of customer analytics and behavioral patterns. This can be used to provide more tailored services and plans to end users.
The second area of interest is the linkages between insurance and lifestyles. As the country’s largest retailer and the biggest seller of food, Walmart is in a unique position to help consumers lead healthier lives and make informed decisions about things like diet. As the potential owner of a health insurance firm, it would also be in a position to reward customers for making healthy choices. As much as this raises ethical concerns about privacy, there would be logic in sharing data between the retail and insurance divisions.
The third reason is the other linkages Walmart could make between healthcare and retail. This includes health services in stores, drug and prescription sales, and the sale of all manner of health devices and products. The connections might be somewhat oblique, but Walmart’s reach and its nationwide store coverage mean that there is an opportunity to be exploited.
The fourth reason is the need to diversify for growth. As much as Walmart can grow organically and through retail acquisitions, the company is of such scale that the opportunities for future expansion in the U.S. are limited. Healthcare is a huge market and a significant area of both consumer and corporate expenditure. It is also a major growth sector. Moving onto this turf would give Walmart a whole new arena in which to expand. Something that would be valuable at a time when its retail margins are under pressure.
The final driving force is the likely risk of Amazon getting into health insurance and healthcare. Walmart will have read these reports and will understand the threat of allowing Amazon to get too powerful a grip on the lives of consumers. Although Walmart is unlikely to initiate any deal merely to fend off future competitive risks, Amazon will be at least part of the consideration.
It is far from certain that any deal will come off. There are financial and regulatory hurdles as well as enormous corporate considerations. However, that the deal is even being discussed shows how much both retail and healthcare are changing.
The risks of becoming entangled in the complex U.S. healthcare industry are considerable, especially at a time when Walmart is grappling with the competitive challenges of a rapidly shifting retail market. The hammering out of any agreement — which would be Walmart’s largest ever corporate deal — would, of itself, be an enormous distraction.
Integrating and running the business would be even more challenging. It would mark a significant change of direction for Walmart, which would, overnight, move from being a retailer to a more diversified consumer services company.
Despite the risks, there is some appeal and a bit of logic in a partnership between the two firms.
The U.S. healthcare industry, including insurers, has never been particularly customer-centric. The tendency to overcomplicate options and plans has led to confusion, low satisfaction, and a lack of trust. On top of this poor experience, the industry is riddled with inefficiencies. These things are an anathema to most retailers, particularly so to Walmart.
Therein lies a potential opportunity for Walmart to bring some much-needed focus and discipline to the health insurance industry. However, on its own, this is too vague a notion to act as a catalyst for a deal; other things have to be in play to make the risks of any tie-up worthwhile.
One of these is the potential to use customer data to improve decision making and health outcomes. Like Amazon, which has also sent signals that it wants to disrupt healthcare, Walmart has an in-depth knowledge of customer analytics and behavioral patterns. This can be used to provide more tailored services and plans to end users.
The second area of interest is the linkages between insurance and lifestyles. As the country’s largest retailer and the biggest seller of food, Walmart is in a unique position to help consumers lead healthier lives and make informed decisions about things like diet. As the potential owner of a health insurance firm, it would also be in a position to reward customers for making healthy choices. As much as this raises ethical concerns about privacy, there would be logic in sharing data between the retail and insurance divisions.
The third reason is the other linkages Walmart could make between healthcare and retail. This includes health services in stores, drug and prescription sales, and the sale of all manner of health devices and products. The connections might be somewhat oblique, but Walmart’s reach and its nationwide store coverage mean that there is an opportunity to be exploited.
The fourth reason is the need to diversify for growth. As much as Walmart can grow organically and through retail acquisitions, the company is of such scale that the opportunities for future expansion in the U.S. are limited. Healthcare is a huge market and a significant area of both consumer and corporate expenditure. It is also a major growth sector. Moving onto this turf would give Walmart a whole new arena in which to expand. Something that would be valuable at a time when its retail margins are under pressure.
The final driving force is the likely risk of Amazon getting into health insurance and healthcare. Walmart will have read these reports and will understand the threat of allowing Amazon to get too powerful a grip on the lives of consumers. Although Walmart is unlikely to initiate any deal merely to fend off future competitive risks, Amazon will be at least part of the consideration.
It is far from certain that any deal will come off. There are financial and regulatory hurdles as well as enormous corporate considerations. However, that the deal is even being discussed shows how much both retail and healthcare are changing.