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Walmart and Humana: Why Seniors Are at the Center

The prospect and fear of disruption in healthcare is clearly good for marriage—at least the corporate kind. Walmart, the world’s biggest retailer, is in “early-stage acquisition talks” with Humana, a health insurance company with some 14 million members in its medical benefit plans and $54 billion in 2017 revenue, reports the Wall Street Journal—which notably also broke news of the CVS–Aetna deal last year.

Sy Mukherjee has a smart take on this development—and you should also read my colleague Polina Marinova’s breaking analysis in FORTUNE’s Term Sheet this morning. But one thing worth highlighting is how central one key demographic is to this seemingly out-of-the-box M&A move—and that’s the prodigiously sized generation of Medicare recipients.

A whopping 79% of Humana’s total premiums and services revenue comes from Uncle Sam—through individual and group Medicare Advantage plans and other stand-alone prescription drug plans, according to the company’s latest 10-K filing with the SEC (see page 5). Humana offers at least one type of Medicare plan in each of the 50 states.

That same silver-domed demo, of course, is core to Walmart: Millions of seniors not only shop at its stores but also pick up their scrips there, too. The world’s largest employer (after the U.S. Department of Defense and the People’s Liberation Army) also just happens to be the 4th largest operator of pharmacies in the U.S., with $20.6 billion in 2016 prescription drug sales, according to Pembroke Consulting (and my all-knowing colleague Phil Wahba). That makes Walmart-the-drug-chain bigger than Rite Aid.

And like CVS, Walmart has been energetically incorporating primary care clinics in many of its stores too. (That’s a direction Humana had been heading as well: It has nearly 200 clinics that it operates on its own or in joint ventures, according to Modern Healthcare.) The idea of combining these resources—and encouraging Humana plan members to get their primary care through Walmart clinics, get their meds through Walmart pharmacies, and shop in the healthy fruit and veggie aisles at Walmart groceries—makes good, simple sense.

Which is why the race is on. Kroger’s going to buy (or be bought by) somebody in this space. Mark my word.

This essay appears in today’s edition of the Fortune Brainstorm Health Daily. Get it delivered straight to your inbox.