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UPDATE 2-CVS makes more than $66 billion bid for Aetna -source

(Adds context, analyst)

Oct 26 (Reuters) - U.S. pharmacy operator CVS Health Corp has made an offer to acquire No. 3 U.S. health insurer Aetna Inc for more than $200 per share, or over $66 billion, a person familiar with the matter said on Thursday.

A deal would merge one of the nation's largest pharmacy benefits managers and pharmacy operators with one of its oldest health insurers, whose far-reaching business ranges from employer healthcare to government plans nationwide.

Aetna shares rose more than 11 percent, or $18.48, to $178.60, while CVS shares fell 3 percent, or $2.22, to $73.31.

Healthcare consolidation has been a popular route for insurers and pharmacies, under pressure from the government and large corporations to lower soaring costs. But both have been turned down by antitrust regulators in the past year.

Aetna and CVS declined to comment.

CVS made the offer earlier this month, although the two companies have been in discussions about a potential deal for at least two months, the source said. There is no certainty that an agreement will be reached, the source added.

The source did not specify how much of CVS' bid is cash versus stock, but given CVS' and Aetna's market capitalizations of $77 billion and $54 billion, respectively, a substantial stock component is likely in any deal.

The Wall Street Journal reported on the talks earlier on Thursday.

Aetna earlier this year closed the door on a deal with rival insurer Humana Inc after antitrust regulators said that combination and a rival deal between Anthem Inc and Cigna Corp were anti-competitive.

UNCERTAIN TIMES AHEAD

The deal comes after years of major changes to the U.S. health insurance industry under former President Barack Obama, whose 2010 Affordable Care Act created new ground rules for how insurers operate and expanded insurance to 20 million more Americans.

Republican President Donald Trump has promised to turn back many of the Affordable Care Act's facets, but Congress has not been able to agree on a repeal or a replacement. The lack of progress - as well as Trump's executive order to bring down healthcare costs - has created uncertainty for insurers as they head into 2018.

After the deal with Humana fell apart, Aetna Chief Executive Officer Mark Bertolini has said that he did not believe large deals were possible in the insurance industry.

But analysts have speculated about a tighter partnership between Aetna and CVS since early in the year. CVS and Aetna have a long-term contract in which CVS has provided pharmacy benefits for Aetna customers.

"Aetna really makes the best sense" said Jeff Jonas, a portfolio manager at Gabelli Funds. "It's their largest client on the PBM side. They really have similar views as to where healthcare should go, which is to the retail setting."

Jonas, who owns both Aetna and CVS shares, noted the two companies were already talking about working together on Minute Clinic, on home infusion and other services.

"To go from that to a full merger is a big step but it's not huge," he said.

Last week No. 2 insurer Anthem Inc. announced plans to manage its own pharmacy benefits with the help of CVS, a move that would give it a set-up similar to UnitedHealth Group Inc. and its Optum unit. Insurers want more control over the pharmaceutical component of care as they implement pricing schemes with doctors and hospitals that are based on health outcomes, not just procedures.

They also want to work on driving down costs, and as a pharmacy benefit manager, would negotiate directly with drugmakers. (Reporting by Carl O'Donnell, Caroline Humer and Bill Berkrot in New York; Editing by Dan Grebler)