Updated at 6:45 p.m.
Washington – The Justice Department filed lawsuits Thursday to block proposed mergers between Aetna and Humana and Anthem and Cigna, and the insurers said they will fight back.
“If allowed to proceed, the mergers would fundamentally reshape the health care industry,” said U.S. Attorney General Loretta Lynch.
Justice Department officials derided one of the reasons the insurers cited in arguing for approval of the mergers – that it would result in efficiencies that would boost revenues and profits.
Deputy Associate Attorney General Bill Baer called the insurers’ proposals to divest themselves of “small pieces” of their companies to allay the DOJ’s concerns about the mergers’ impact on competition in the market “incomplete and totally inadequate.”
Connecticut had approved the Aetna-Humana merger, but not acted on the Anthem-Cigna deal yet. On Thursday, the Connecticut Insurance Department said it would halt its review of the deal.
“As a result of the federal antitrust lawsuit, the Connecticut Insurance Department has immediately suspended its review of Anthem’s Form A application,” said Connecticut Insurance Department spokeswoman Donna Tommelleo.
Connecticut Insurance Commissioner Katharine Wade has come under fire – and been the subject of calls for her recusal – for her role in the review of the Anthem-Cigna merger. Wade is the leading state regulator of the deal, but also a former Cigna employee whose husband still works for the company.
In a joint statement, Aetna and Humana said they plan to “vigorously defend” their pending merger in response to the Justice Department lawsuit.”
“A combined company is in the best interest of consumers, particularly seniors seeking affordable, high-quality Medicare Advantage (MA) plans,” the insurers’ statement said.
But the Justice Department said it was seeking to block the merger to preserve competition in the Medicare Advantage market.
“Since they began their negotiations, Aetna and Humana knew that their
competition against each other in Medicare Advantage was an antitrust problem,” the DOJ lawsuit said. “In nearly 90 percent of the counties where Aetna offers Medicare Advantage, it competes directly with Humana.”
The lawsuit also said, “Aetna’s proposed $37 billion merger with Humana would lead to higher health insurance prices, reduced benefits, less innovation, and worse service for over a million Americans.”
In a letter distributed to employees Thursday, a defiant Mark Bertolini, Aetna’s chairman and CEO, said the company would continue to pursue its marriage with Humana despite the Justice Department’s suit.
“We look forward to sharing the facts in court, and we will continue to press forward,” Bertolini wrote. “In the meantime, our integration planning continues. I would like to thank all those who continue working to close the deal and plan for a successful combination of our companies.”
Bertolini also said he would be hosting a town hall with employees Monday.
The Justice Department’s Antitrust Division cited other concerns in moving to block the proposed $54 billion merger between Anthem and Cigna.
“It would combine two of the few remaining commercial health-insurance options for businesses and individuals in markets throughout the country. And in doing so, it would substantially lessen competition, harming millions of American consumers, as well as doctors and hospitals,” the lawsuit said.
The lawsuit also said, “Anthem has also earned a reputation in many markets for having poor customer service, being slow to innovate, and being difficult to work with for doctors and hospitals. The president of Anthem’s Indiana business conceded, ‘There are some customers, some prospects who loathe us.’”
Anthem also said it will challenge the DOJ lawsuit, “but will remain receptive to any efforts to reach a settlement with DOJ that would allow us to complete the transaction and deliver its benefits at a critical time when American consumers are seeking high quality healthcare services with greater value at less cost.”
The DOJ also said the mergers would hurt competition in the state health insurance exchanges established under the Affordable Care Act.
Connecticut is one of 11 states that joined the DOJ’s lawsuit against the Anthem-Cigna merger plans, but the state did not join eight states that joined the suit to block the Aetna-Humana deal.
“We are asking the court today to find this merger in violation of antitrust law and to permanently enjoin it from taking place,” said Connecticut Attorney George Jepsen, “Both Anthem and Cigna have a significant presence in Connecticut’s healthcare market. According to our analysis, all five of Connecticut’s metropolitan markets would be among the 35 markets nationwide that would be negatively impacted by this merger.”
The state’s complaint said the merger would hurt competition in the state in the large group market and plans sold to individuals through public exchanges, “leaving employers and individual consumers vulnerable to increased costs and providers subject to decreased rates, with few, if any, options to find better alternatives.
“Additionally, the merger would remove Cigna, which has been an innovative leader in the industry’s move to value-based care, as a competitive force in Connecticut’s market,” Jepsen said.
Costly breakup
The DOJ lawsuit said Aetna agreed to pay Humana a $1 billion “break-up fee” if the merger were not consumated by Dec. 31, 2016.
“From the outset, Aetna and Humana realized that their deal raised significant
antitrust issues. To convince Humana to proceed in the face of antitrust risks, Aetna…sought to downplay the antitrust issues it knew this deal would raise.”
“When preparing a presentation for the company’s board of directors, senior Aetna executives circulated a list of ‘words to avoid,’ which included terms likely to raise law enforcement concerns, such as ‘markets,’ ‘dominate/dominance,’ and ‘consolidate,’ ” the lawsuit said. “But merely avoiding those words does not make the merger any less likely to harm consumers by eliminating competition.”
The breakup fee Anthem must pay Cigna if the merger is not completed is about $1.8 billion. The DOJ said Anthem and Cigna were also “well aware of the competitive problems the deal would create.”
“In October 2014, Cigna’s chief financial officer warned the CEO to stop using words like ‘dominant’ and ‘market share’ when analyzing the potential deal because they are ‘both sensitive words from a post deal review perspective,’” the DOJ lawsuit said.
Clare Krusing, spokeswoman for America’s Health Insurance Plans, an association that represents the nation’s health insurers, said the DOJ’s action Thursday is not the end of the companies’ efforts to merge.
“Today’s announcement is a step in an ongoing process,” she said. “Mergers among health plans can deliver significant benefits by combining complimentary areas of expertise to ensure consumers get the best value for their health care dollars. Notably, many insurance departments across the country have approved these mergers.”
Meanwhile, members of a coalition of medical associations and consumer organizations that opposed the mergers hailed the Justice Department’s actions.
“This is an important first step in highlighting the significant deficiencies in these proposed mergers, and their negative impact on patient access to care in Connecticut and throughout the country,” said Matthew Katz, chief executive officer at the Connecticut Medical Society.
Katz said Connecticut doctors had “expressed major concerns with giant health insurers becoming goliaths with exclusive or near-exclusive power to dictate price and care delivery to the detriment of patient medical care.”
The American Medical Association said, “The prospect of reducing five national health insurance carriers to just three is unacceptable. Given the mergers’ potential to significantly compromise market competition, the AMA strongly supports the antitrust challenge from federal regulators.”
Sen. Richard Blumenthal, D-Conn., who urged the Justice Department to block the merger last month in a letter that was also signed by six other senators, said, “This federal court action thankfully should stop misguided mega-mergers that would kill jobs and raise prices.”
“Such mammoth mergers threaten jobs, hike prices, lessen choice, and lower health care quality. I will continue working to help these companies be successful, thriving, independent competitors here in Connecticut,” Blumenthal said.