Insurance mergers face hurdles, increased opposition

Washington – The CEOs of the large health insurers hoping to close on historic mergers are telling investors and the public the deals are on track, but there are still a number of hurdles, and increasing opposition, to the deals.

The proposed mergers between Aetna and Humana and between Anthem and Cigna are facing scrutiny by state regulatory agencies, state attorneys general, the U.S. Justice Department and the Federal Trade Commission – a ramp up of regulatory reviews because the industry already has been consolidated by previous mergers and acquisitions.

There’s also increased opposition to the deals from a new coalition of consumer groups and medical associations concerned about the consolidations – which would shrink the U.S. healthcare insurance market from five major insurers to three.

There is also so much scrutiny because billions of dollars are at stake and the impact of the mergers on the nation’s health care system is unknown, although the Justice Department and the FTC are trying to determine that.

To help it do so, the Justice Department’s Antitrust Division has asked at least 15 state attorneys general for help, including Connecticut Attorney General George Jepsen.

Jepsen spokeswoman Jacklyn Falkowski said the attorney general is part of an investigation into the antitrust impact of the mergers, working with the Justice Department, and other states that are involved. But she said she could not say much about the nature of the information being shared.

“It’s an ongoing investigation, so unfortunately we can’t comment,” Falkowski said.

Cigna headquarters in Bloomfield

Cigna Corp.

Cigna headquarters in Bloomfield

Jepsen last year recused himself from matters involving the Anthem-Cigna deal because his wife worked for Cigna. He reversed himself after his wife quit the company.

Dozens of insurance regulators are involved, too. Unlike the Justice Department, which is examining whether the mergers will stifle competition in the industry, the states are weighing the impact of the mergers on consumers.

Insurance commissioners from 20 states are looking into the proposed Aetna-Humana merger, and 27 states are looking into plans for Anthem and Cigna to merge. Fifteen states, including Connecticut, have signed off on the Aetna-Humana deal.

It’s not clear how many have approved the Anthem-Cigna merger, but key states with large numbers of the companies’ customers have not weighed in, including New York and California. It’s also not clear why some of the states scrutinizing the consolidations haven’t made their decisions.

Richard Loconte, spokesman for New York’s Department of Financial Services, would only say, “We are in the process of reviewing the mergers.”

Katharine Wade, head of the Connecticut Insurance Department, is among the state regulators assessing the impact of the mergers. She approved the Aetna-Humana consolidation in January.

Wade has not made a decision on the Anthem-Cigna deal, but she has a leading role in the state review of that merger because Cigna Health & Life Insurance Company is domiciled in Connecticut.

As the lead state regulator, Wade has the role of coordinator and communication facilitator among the states and serves as the central point of contact for purposes of gathering and distributing information to all regulators involved.

That role has drawn heat, especially from a growing coalition of medical industry and consumer groups that oppose the merger and want her to recuse herself from the Anthem-Cigna review since she is a former Cigna attorney whose husband still works for the company. One of Wade’s top deputies, who left the agency in January, is a former Cigna employee, and another former Cigna employee served as agency counsel in reviewing the Anthem-Cigna plan.

“Any one of these connections would arouse public suspicion about the commissioner’s ability to conduct an impartial review of this multi-billion dollar merger proposal,” said Cheri Quickmire, executive director of Common Cause in Connecticut.

On Friday, Gov. Dannel Malloy said he would not remove Wade from the case because she had been cleared of conflict in an ethics review and “quite frankly we need a steady hand directing our approach to what is a very complicated issue.”

Despite Wade’s role as coordinator of state regulatory review, her agency declined to say how many states have not weighed in yet.

“I refer you to the companies for status on all their filings,” said Connecticut Insurance Department spokeswoman Donna Tommelleo. Insurers contacted for this story also declined to comment.

California Dreaming

Those opposed to the mergers hope California Insurance Commissioner Dave Jones, who has a reputation as a consumer advocate, will tell the Justice Department the mergers are a bad idea.

With 32 million people covered by health insurance, California is the largest state market. Like other states, Jones has held public hearings on the mergers, with one on Anthem-Cigna in March and one on Aetna-Humana in April.

Insurance company officials testified, as did an array of consumer and medical groups and associations, including the California Medical Association, the American Medical Association, Consumers Union, and the California Public Interest Research Group.

Medical groups are concerned the consolidations will result in less choice and higher premiums for patients – and less leverage in negotiating fees from insurers. Consumer groups are also concerned the mergers will result in more expensive premiums and lower quality of care. They have flooded the states’ insurance commissioners with letters opposing the mergers.

“We are concerned that the merger of these dominant insurers could substantially lessen competition and harm millions of consumers in Missouri,” said  a letter from Consumers Union, the Consumer Federation, the Service Employees International Union and others to John M. Huff, that state’s insurance commissioner.

Late last month, Missouri became the first state to say it would bar a merged Aetna-Humana from selling certain lines of insurance in the state.

Insurers say the mergers will result in greater efficiencies and lower premiums.

“The combined Anthem-Cigna will make possible data-driven, evidence-based medical protocols that enable providers to improve patient care and safety and deliver services more efficiently,” Anthem Vice President Jay Wagner testified at the California hearing. “By providing a holistic view of our members across the health care system, providers can more quickly evaluate the  effectiveness of their own treatment protocols and identify factors that impact patient outcomes, both positively and negatively.“

Aetna Executive Vice President and top in-house lobbyist Fran Soistman testified that, “The Aetna acquisition of Humana is about two  companies coming together to offer more people a broader choice of higher quality and more affordable health plan options.”

“Our companies are highly complementary, combining Aetna’s focus on commercial and group products with Humana’s concentration on Medicare Advantage,” Soistman said.

Aetna headquarters in Hartford

Aetna

Aetna headquarters in Hartford

Besides holding hearings, Jones has volunteered to give the Justice Department a report on the impact of the mergers on his state. The report will be compiled from testimony from the hearings and from an independent actuary.

“The commissioner is dedicated to protecting consumers and feels strongly that these proposed mergers must undergo thorough scrutiny, as there is little evidence that market consolidation ever benefits consumers,” said Jones spokeswoman Nancy Kincaid. “This merger would create the nation’s largest health insurer, which could have a significant impact on California’s consumers, businesses, and health care marketplace.”

Kincaid said the insurers “bear the burden of demonstrating this proposed merger is in the best interest of the California consumers and the healthcare marketplace.”

Merger opponents also are hoping lawmakers in Congress who are uneasy about the mergers’ impact on constituents will pressure the Justice Department to reject them. They are especially eager for Sen. Richard Blumenthal, D-Conn., who expressed early concern about the mergers during congressional hearings last year, to come out against the deals.

Representing the state that is home to both Aetna and Cigna, Blumenthal rejection would have outsized impact. He said, “I’m still weighing the evidence.”

On track

Aetna President Karen Lynch told analysts at a Goldman Sachs health care conference in California last week that Aetna continues to provide the Justice Department with “a lot of information,” but that the merger with Humana is on track to close by the end of the year.

Anthem CEO Joseph Swedish said recently that his company expects to hear a decision in July. The Justice Department could approve or reject the merger, or approve it with conditions requiring the companies divest themselves of some product lines or do other things to keep the marketplace competitive.

The Justice Department declined to give a timeline for any decisions, but said deadlines could be negotiated – and pushed back – under agreements between the Justice Department and the insurers.

David Balto, a former attorney with the Justice Department’s Antitrust Division, is spearheading opposition to the mergers as the head of the Coalition to Protect Patient Choice, a non-profit composed of advocacy groups including the Consumer Federation of America, Consumer Action and New York public employee labor unions.

Balto said many states have not weighted in yet because of concerns about the consolidations, and he’s hopeful public hearings will help quash both mergers.

“The states are important because they are a transparent laboratory for the Justice Department and the state attorneys general to see how it would work,” he said.

Balto has testified at state hearings about how the mergers would harm consumers and posts all letters to regulators that oppose the mergers, by state, on his coalition’s web site.

Connecticut opponents of the mergers are angered Wade did not hold a public hearing before she made a decision to approve the Aetna-Humana deal. The Connecticut Insurance Department said it was not required to – though other states held  public forums voluntarily.

Wade does plan a public hearing on the Anthem-Cigna proposal, but no date has been set yet.

“The review is still ongoing by the professional staff, and when completed a formal notice for a public hearing will be issued,” Tommelleo said.

Meanwhile, Balto and the coalition of medical associations and consumer groups are ramping up their efforts to stop the consolidation.

“We are singing from the same hymnal and sitting next to each other in the choir. The hymn is simple, ‘Please stop this because it will harm consumers’,” Balto said.

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