By Carl O'Donnell and Caroline Humer

(Reuters) - The potential bust-up of two mega deals among America’s largest health insurance companies may have an unintended result - more mergers.

The U.S. Department of Justice on Thursday sued to block Aetna Inc's <AET.N> $37 billion purchase of Humana Inc <HUM.N> and Anthem Inc’s <ANTM.N> proposed $54 billion buyout of Cigna Corp <CI.N>, arguing that they would cut competition and boost rates for patients.

If no settlement is reached for one or both deals, the fallback strategy for the four insurers to ensure future growth would likely be a familiar one: Another buying spree, this time of smaller insurers less likely to raise the ire of regulators.

"Unless the market changes drastically, I don't see another major deal going through," said Norman Armstrong, a partner at King and Spalding LLP who focuses on antitrust. "But with smaller deals there's more potential to get something done."

The most obvious targets are midsized, national players in government healthcare plans such as Centene Corp <CNC.N>, Molina Healthcare Inc <MOH.N>, or WellCare Health Plans Inc <WCG.N>, according to analysts and investors.

Although acquiring these companies would not produce the big boost to earnings sought by the planned mega mergers, they would offer a foothold in markets likely to grow rapidly in coming years, such as Medicaid health plans for the poor and Medicare Advantage coverage for the elderly.

Both Molina and Centene have large exposure to private Medicaid plans, a more than $100 billion market that is benefiting as states outsource more responsibility for the government insurance program to private companies.

Molina and WellCare were also said to be interested in Medicare Advantage plans that Aetna sought to divest to win approval for its Humana deal, according to a source familiar with the matter.

Anthem has already expressed interest in acquiring Medicare and Medicaid members. In 2014, it purchased Simply Healthcare Holdings, a managed care company for government health insurance in Florida.

In the case of Centene, the biggest impediment to a deal is that the company is not likely ready to sell.

Centene sees itself as an acquirer, not a target, according to spokeswoman Marcela Manjarrez Hawn. Earlier this year, Centene acquired peer HealthNet for $6.3 billion.

"We believe it will be difficult for anyone to pay what we will be worth in the next 12 months," she said in a statement.

Another option would be Magellan Health Inc <MGLN.O>, an insurer that focuses on niche types of patients, according to Ana Gupte, an equities analyst at Leerink Partners.

Buying Magellan could help insurers build out their capabilities in dealing with specialty products, at a time when high prices for specialty drugs are attracting increasing attention, Gupte said.

Aetna, Cigna and Magellan declined to comment. Anthem, Molina, Humana, and WellCare did not immediately respond to requests for comment.

Even these smaller deals may not clear antitrust approval.

For example, WellCare, with a market capitalization of under $5 billion, may be too much for Humana to swallow, largely because both companies have significant presences in the Medicare Advantage space.

“The [Justice Department] is on ‘high alert’ right now, so maybe even a smaller deal is harder than in the past,” said Gupte.

To avoid the most intense regulatory scrutiny, any follow-up deals are likely to be delayed until after the U.S. presidential and congressional elections in November, when the prospect of big health insurance combinations will be less politically charged, according to a shareholder in Humana who asked not to be named because he was not authorized to talk to the media.

In the interim, Aetna, Humana, Anthem and Cigna may seek to placate investors with share buybacks.

Between them, the health insurance companies could buy back more than $14 billion worth of shares, providing an immediate boost to earnings per share to help offset the impact of the lost mergers, Christine Arnold, an analyst at Cowen and Company, wrote in a research note.

(Reporting by Carl O'Donnell and Caroline Humer in New York; Editing by Matthew Lewis)