US Sues to Block 2 Health Insurance Mega-Mergers
July 21, 2016
The Justice Department on Thursday moved to keep the health insurance industry more competitive by suing to block two mega mergers.
The deals — Anthem’s $54 billion proposal to buy Cigna and Aetna’s $37 billion deal to buy rival Humana — would reduce the number of large national insurers from five to three.
In its suits, Loretta Lynch’s Justice Department said the mergers “would reshape the industry at a time when the industry is experimenting with new ways to lower health care costs.
“Other insurers lack the scope and scale to fill this competitive void,” Justice said in one of the lawsuits, both filed in federal court in Washington, DC, adding that “each of the big three would have almost twice the revenue of the next largest insurer.”
Anthem and Cigna are the only two big American insurers serving people who are self-insured — and regulators are concerned that combining them could lead to higher prices.
The Post on May 20 was the first to report the DOJ did not like the Anthem deal.
The Aetna block is more controversial as Justice is concerned the combined company would have too big a market share serving Medicare Advantage patients.
Aetna countered by telling antitrust investigators that it would not be able to raise Medicare Advantage prices as customers would just switch to traditional Medicare, sources familiar with the private talks told The Post.
“Congress created the Medicare Advantage program in 1997 to offer seniors a market-based alternative to traditional Medicare,” Justice argues in the lawsuit. “Humana and Aetna are two of the largest and fastest-growing Medicare Advantage competitors in the country.”
“Competition between Humana and Aetna has led to lower premiums, more generous benefits, better provider networks, and improved coordination of care,” court papers allege.
Jefferies, in a report this week, said it believed Aetna would offer to Justice as a remedy to get the deal approved to sell much more than the 350,000 Medicare Advantage accounts it now has on the table.
“Conversations with legal experts suggest the deal is more likely to go through than not,” Jefferies said, although with a high price tag.
“Under historical concentration frameworks, about 400,00 to 500,000 Medicare Advantage accounts need to be divested,” Jefferies said, noting that Aetna can give up “as many as 1 million lives before the deal wouldn’t be accretive.”
Aetna said it “plans to vigorously defend the companies’ pending merger.”
Humana’s shares were up 7.2 percent in mid-day trading to $169.80, showing Wall Street believes a remedy can be reached. Aetna shares gained 2.9 percent, to $119.88.
Anthem said it was “fully committed to challenging the DOJ’s decision in court but will remain receptive to any efforts to reach a settlement with the DOJ that will allow us to complete the transaction and deliver its benefits at a critical time when American consumers are seeking high quality health care services with greater value at less cost.”
Cigna’s shares rose 3.4 percent to $137.57. Anthem shares gained 2.9 percent to $139.37.
Source: New York Post