Aetna-Humana, Anthem-Cigna facing different merger obstacles

Cigna headquarters in Bloomfield

Cigna Corp.

Cigna headquarters in Bloomfield

Washington – Although they both plan to merge with another major insurer, Aetna’s and Anthem’s paths to completing their deals have diverged.

So far, Aetna appears to be clearing the regulatory and antitrust hurdles it faces to merge with Humana more easily,  while Anthem’s proposed marriage to Cigna has faced more troubles. Neither has yet cleared the hurdle of antitrust approval from the U.S. Justice Department.

Aetna’s $37 billion deal to buy Humana Inc. was approved by the California Department of Managed Health Care, which said this week it could move forward – but only after the company agreed to invest $50 million in the state’s health-care infrastructure. The department has not yet decided on Anthem’s bid to acquire Cigna.

“This is the latest positive step in the approval process, as we move closer to a combined company,” Aetna spokesman T.J. Crawford said of California’s move.  “We continue to expect the transaction to close in the second half of 2016.”

But last week, California Insurance commissioner Dave Jones recommended to the U.S. Justice Department that it block the Anthem-Cigna merger, saying the consolidation would be anti-competitive. 

“Anthem and Cigna failed to provide details to support their claim of $2 billion in savings, and they refused to guarantee consumers and businesses will see the benefit of any potential savings in reduced prices,” said Jones. “More competition in California’s consolidated health insurance markets is needed, not less.”

Anthem responded that it did not believe “that the California Department of Insurance’s opinion is based on the true merits of this transaction.”

“We are confident that the highly complementary nature and limited overlap of our organizations that will benefit the complex and competitive health insurance markets will be reviewed on the facts by the DOJ and appropriate state authorities,” the company said.

Meanwhile, with California’s approval, only four of 20 states required to assess the Aetna-Humana deal remain to weigh in. Connecticut, one of the 20, approved it in January.

Twenty-eight states, including Connecticut, must weigh in on the $54 billion Anthem-Cigna merger. Only 12 have approved it so far. Connecticut Insurance Commissioner Katharine Wade, a former Cigna employee, is the lead state regulator on the merger, but she hasn’t made a decision on it yet.

Several of the states that have not approved the merger, including New York, New Hampshire and Georgia, would experience concentration in their health insurance markets. How much concentration to allow is a key criterion for rejecting or imposing conditions on a merger.

Perhaps more troubling to Anthem and Cigna was a story by the Wall Street Journal this week, quoting anonymous sources, that said Justice Department officials are questioning whether the companies can make enough concessions for their deal to be approved. The Journal story and other factors prompted some financial analysts to downgrade their estimates of the likelihood the merger would be completed.

The Justice Department declined to comment on the report.

Aetna headquarters in Hartford

Aetna

Aetna headquarters in Hartford

Executives from Anthem and Cigna are meeting this week with Justice Department antitrust officials and some of the state attorneys general helping DOJ review the merger.

Connecticut Attorney General George Jepsen is among those reviewing the Anthem-Cigna merger, but he is not expected to attend the meeting because he will be in Burlington, Vt., at the summer meeting of the National Association of Attorneys General, where he hopes to be voted the group’s new president.

The mergers would shrink the nation’s five biggest health insurers to three. The insurers say there will still be plenty of competition, and consolidation would bring about efficiencies that result in lower premiums and better health care delivery. Others don’t think so.

The American Medical Association, a leader of a coalition of health care associations and consumer groups that oppose the mergers, estimated Aetna’s purchase of Humana would diminish competition in 58 different metropolitan areas in 14 states: Arizona, Florida, Georgia, Illinois, Indiana, Kentucky, Louisiana, Mississippi, Ohio, Tennessee, Texas, Utah, Wisconsin, and West Virginia.

But the AMA said the Anthem-Cigna merger would eliminate competition in 111 metropolitan areas in 14 states, including California, Colorado, Connecticut, Georgia, Indiana, Kentucky, Maine, Missouri, Nevada, New Hampshire, New York, Ohio, Virginia and Wisconsin.

Different deals

The mergers were announced within a week of each other last summer, but they differ in nature.

Aetna’s said its purchase of Humana was based in large part on its prospective partner’s concentration in the Medicare Advantage market, which would complement Aetna’s other lines of business.

That may be right, but at least one state had a problem with the consolidation. Missouri called the deal anti-competitive for the state’s Medicare market.

Aetna spokesman Crawford said Missouri regulators didn’t reject the acquisition, merely issued a preliminary order outlining their concerns. “We’re now engaged in a constructive dialogue with the state,” Crawford said.

To address the state’s worries, the insurers will probably have to divest some of their Medicare plans in the market to reduce their combined dominance.

New Hampshire determined its Medicare Advantage market is highly concentrated, with just nine companies offering plans in the state. However, the state determined Aetna and Humana are not direct competitors in this market because Aetna stopped selling Medicare Advantage policies in the state last year. Since the merger would not result in additional consolidation, New Hampshire approved the Aetna-Humana merger in March.

Meanwhile, there would be more overlap in the types of products sold in each state if Anthem buys Cigna.

“Both of them have a strong presence in the employer group market,” said Sabrina Corlette, a professor at Georgetown University Center on Health Insurance Reforms.

Gary Claxton, vice president of the Kaiser Family Foundation, said “the number of health insurers that can serve large national employers are very small, while there are more carriers in the Medicare Advantage market.”

“And its easier in a Medicare Advantage market to divest when there is too much concentration,” Claxton said.

David Balto, a former attorney with the Justice Department’s Antitrust Division who has frequently testified in opposition to the mergers, says Anthem and Cigna combined would control nearly half of the nation’s self-insured employer group market.

Peter Kochenburger, deputy director of the University of Connecticut’s Insurance Law Center, said he’s aware of much more concern regarding the Anthem-Cigna merger than the Aetna–Humana deal and thinks the reason is both the impact of consolidation – and perhaps how the companies packaged their plans to state regulators and the Department of Justice.

“It could be a matter of how the companies presented their mergers,” he said.

The quality and persuasiveness of the presentations the insurers make to the Justice Department and state regulators cannot be judged publicly because they are confidential.

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