DOJ Action Halts Proposed Anthem/Cigna Merger

by Abel Hampton July 22, 2016, 4:39

Justice Department's lawsuit to block the proposed mergers of four of the five largest health insurers in the nation, Humana Inc. said Thursday that it will greatly reduce the plans it offers through public health insurance exchanges and stop offering coverage in "substantially" all other individual markets next year.

Both lawsuits use identical language arguing that the deals would eliminate "two innovative competitors" - Cigna and Humana - "at a time when the industry is experimenting with new ways to lower health-care costs".

"They would leave much of the multi-trillion-dollar health insurance industry in the hands of just three mammoth insurance companies", Lynch said, "drastically constricting competition in a number of key markets that tens of millions of Americans rely on to receive health care". And competition is critical for doctors and hospitals who obtain access to most of their commercial health-insurance patients by contracting with insurers to be "in-network" providers.

Aetna's takeover of Humana, announced on July 2, 2015, would join the country's third and fifth-largest health insurance companies, combining 37 million customers, with combined revenues a year ago of $114 billion.

Jepsen declined to join the suit against the Aetna-Humana merger, though, saying Humana doesn't sell it's Medicare Advantage plans or traditional health insurance plans in CT. Citing the mergers as a potential barrier to innovation in the sector, the DOJ said it could also raise healthcare costs.

As a result of the suit, the state Insurance Department has suspended its review of the Cigna - Anthem merger application. Justice officials indicated that they would seek to have the two cases tried together in front of the same judge, a move the insurers appear poised to resist.

"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 nearly twice the revenue of the next largest insurer". The DOJ is also suing to block a similar deal: insurer Anthem has proposed buying Cigna. "Most consumers are covered by insurance plans that their employers choose and negotiate with companies like Anthem and Cigna". "But the antitrust laws make clear that mergers are not lawful when they risk denying the benefits of competition".

Both Anthem and Aetna said they intend to fight the suits.

Anthem said in a statement that it is "fully committed" to challenging the lawsuit in court "but will remain receptive to any efforts to reach a settlement".

In a statement, Cigna revealed the earliest it would close a deal would be in 2017, if at all.

In the complaint, the states point to the benefit of competition between the two companies. Ideally, it would ensure that insurers like Anthem and Aetna do not manage to pilfer money from customers, although health economists are skeptical as to whether the policy would lead to lower rates. However, they bounced back, and now Humana shares have increased by 5,2 percent, Aetna by 2,3 percent, Anthem gained 2,9 percent, and Cigna rose by 1.9 percent.

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