Walmart's talks with an insurance giant could be part of an assault on Amazon Prime

  • Walmart is said to be considering an acquisition of the health insurer Humana.
  • Humana has for years had a close relationship with Walmart, partnering on health plans and other initiatives. The conversations underway now also could lead to a closer relationship without a takeover, Reuters reports.
  • The combination could help Walmart's existing healthcare businesses — including its pharmacy and health clinics — as healthcare companies continue to merge, according to analysts at Morgan Stanley.
  • A deal could also help Walmart confront Amazon Prime memberships, which the analysts describe as "fortifying an impenetrable moat" around Amazon's customers.

News that Walmart may be interested in acquiring Humana makes a lot more sense than it first appears to.

Humana has held early-stage talks with Walmart focused primarily on new partnerships, according to multiple news reports. And while you might think of Walmart as a giant retail business, but it's also one of the largest pharmacy chains in the US, behind only Walgreens and CVS. 

The most popular stores in America:

50 PHOTOS
The most popular stores in America
See Gallery
The most popular stores in America

ALABAMA: Target 

Photo credit: Reuters 

ALASKA: Walmart

Photo credit: Reuters 

ARKANSAS: Target 

Photo credit: Reuters 

ARIZONA: Walmart 

Photo credit: Reuters 

CALIFORNIA: Target  

Photo credit: Getty

COLORADO: Target 

Photo credit: Reuters 

CONNECTICUT: Target 

Photo credit: Reuters 

WASHINGTON, D.C.: Macy's 

Photo credit: Reuters 

DELAWARE: Target 

Photo credit: Reuters 

FLORIDA: UNIQLO 

Photo credit: Reuters 

GEORGIA: Target 

Photo credit: Reuters 

HAWAII: Walmart 

Photo credit: Reuters 

IOWA: Target

Photo credit: Reuters 

IDAHO: Fred Meyer 

Photo credit: Getty

ILLINOIS: UNIQLO 

Photo credit: Getty

INDIANA: Target 

Photo credit: Getty

KANSAS: Target 

Photo credit: Getty

KENTUCKY: Target 

Photo credit: Getty

LOUISIANA: Target

Photo credit: Getty

MASSACHUSETTS: Primark 

Photo credit: Reuters 

MARYLAND: Walmart

Photo credit: Reuters 

MAINE: Target 

Photo credit: Reuters 

MICHIGAN: Walmart 

Photo credit: Reuters 

MINNESOTA: Target 

Photo credit: Getty 

MISSOURI: Target

Photo credit: Shutterstock 

MISSISSIPPI: Target 

Photo credit: Getty

MONTANA: Walmart

Photo credit: Getty 

NORTH CAROLINA: Target 

Photo credit: Reuters 

NORTH DAKOTA: Target 

Photo credit: Reuters 

NEBRASKA: Target 

Photo credit: Reuters 

NEW HAMPSHIRE: Walmart 

Photo credit: Reuters 

NEW JERSEY: Target 

Photo credit: Reuters 

NEW MEXICO: Walmart 

Photo credit: Reuters 

NEVADA: Walmart 

Photo credit: Reuters 

NEW YORK: Bloomingdale's 

Photo credit: Reuters 

OHIO: Walmart

Photo credit: Reuters 

OKLAHOMA: Target 

Photo credit: Reuters 

PENNSYLVANIA: Walmart 

Photo credit: Reuters 

RHODE ISLAND: Target 

Photo credit: Reuters 

SOUTH CAROLINA: Walmart 

Photo credit: Getty 

SOUTH DAKOTA: Walmart 

Photo credit: Getty 

TENNESSEE: Target 

Photo credit: Getty

TEXAS: Target 

Photo credit: Getty 

UTAH: Walmart 

Photo credit: Getty

VIRGINIA: Bloomingdale's

Photo credit: Reuters 

VERMONT: Walmart 

Photo credit: Reuters 

WASHINGTON: Fred Meyer 

Photo credit: Getty 

WISCONSIN: Target 

Photo credit: Getty 

WEST VIRGINIA: Walmart 

Photo credit: Reuters 

WYOMING: Walmart

Photo credit: Reuters 

HIDE CAPTION
SHOW CAPTION
of
SEE ALL
BACK TO SLIDE

Walmart has long had a focus on affordable prescriptions as well, offering some generic medications for $4. And Humana has historically had a close relationship with Walmart: for example, they have a co-branded Medicare drug plan and an initiative that provides healthy-food credits.

That pharmacy component — along with the small healthcare clinic Walmart also has — holds the key to why a deal with an insurer might make sense, analysts at Morgan Stanley said in a note on Monday. 

One other thing to note: Such a deal might help Walmart take on Amazon Prime.

Protecting Walmart's business

The companies responsible for paying for healthcare expenses — like insurers — are feeling the effects of new procedures and innovative medications coming into the market with high price tags. To counter that, they've been consolidating, in part hoping that it will give them more leverage over providers of those expensive treatments. Recent examples include CVS Health and Aetna, which combines an insurer with a pharmacy business just like a Humana-Walmart deal might. The consolidation, in the end, could also put Walmart at a disadvantage if they don't get in the game, the analysts said.

"Like in retail, size and scale also matter in healthcare; thus, consolidation of other retailers and healthcare providers could put Walmart at a disadvantage."

By merging a health insurer into Walmart's business, it could give the joint company a few advantages, such as protecting the retail pharmacy business by potentially driving more people to it, and by having more access through home health to people at home, something Walmart's been working on through its in-home delivery system for groceries and other packages. 

Taking on Amazon

Walmart has also been in steep competition with Amazon, leading the company to try everything from opening FedEx Office locations inside stores to acquiring companies like Jet. Linking up with Humana could be a strategic move on that front to get a more devoted customer base to rival Amazon's Prime memberships. Walmart doesn't have its own membership model.  

"As the battle over consumer spending between Amazon and Walmart intensifies, we are concerned Amazon's Prime membership program is fortifying an impenetrable moat around its customers," the Morgan Stanley analysts wrote. "'Ownership of lives' via healthcare verticalization could be another way to crack into more customers/'members.'"

Credit Suisse analysts separately highlighted the potential for "stickier" customer relationships through the deal. 

"The combination could create stickier customer relationships, leverage locations to better coordinate care delivery (potentially by deploying enhanced pharmacy, small clinic or primary care activities), while also reducing costs, and positioning WMT more offensively for changes in both the healthcare and retail sector," it said in a note. 

For its part, Amazon's ambitions in healthcare are starting to become clearer. The tech giant is teaming up with JPMorgan and Berkshire Hathaway on a nonprofit healthcare initiative, and it already sells over-the-counter medication, including its own exclusive line called "Basic Care."

While it remains to be seen whether Amazon decides to get into the prescription drug business, the company could stand to put a lot of pressure on pharmacy businesses including Walmart's. 

"The big are getting bigger and with AMZN looming over the healthcare space, it could be in WMT's best interest to act to protect its base," the note said. 

NOW WATCH: How one CEO went from rejecting an offer from Steve Jobs to an $11 billion IPO

See Also:

SEE ALSO: Walmart's talks with an insurance giant tell you everything about how healthcare is changing

Read Full Story