Aetna offers divestitures, Cigna looking at its options

Washington – Aetna and Humana said Tuesday they have an agreement to sell Medicare Advantage business covering 290,000 people to rival insurer Molina if their planned merger is allowed to be completed.

But that may not be enough to win over the Justice Department, which has sued to block the merger.

Aetna also said it is halting 2017 plans to expand participation on public exchanges and is reviewing all of its current participation on Affordable Care Act exchanges.

Meanwhile, Cigna CEO David Cordani, said his company is looking at other options if its proposed merger with Anthem fails to go through.

Last month, the  Justice Department sued to block both the Aetna-Humana and Anthem-Cigna deals.

Federal antitrust officials said they were skeptical any divestitures the insurers could make would maintain competition in the health insurance market. The two deals would consolidate the five biggest U.S. health insurers into three companies, which the Justice Department says would raise costs and diminish choices for consumers.

One reason the Justice Department says it opposes the Aetna-Humana merger is that the combined companies would cover 980,000 of the 1.6 million seniors in the nation covered under Medicare Advantage plans.

In its lawsuit, the Justice Department said it would be difficult for Aetna and Humana to divest themselves of enough Medicare Advantage customers to keep that market competitive, especially in 364 counties across the nation where it said a merger would result in “loss of competition and harm to consumers (that would) likely be particularly acute.”

It also said any insurer that would purchase Medicare Advantage assets divested by Aetna and Humana “would not have the necessary contracts with doctors and hospitals, technology platforms, claims processing systems, or employees with specialized knowledge, and no guarantee that the enrollees it just bought would not immediately return to Aetna or Humana.”

Nevertheless, Aetna and Humana are fighting the Justice Department lawsuit and continue working on their plan to merge before the end of the year.

“We continue to move forward with integration plans… that process hasn’t stopped,” said Aetna spokesman T.J. Crawford.

The Justice Department lawsuit also said the $37 billion deal would result in less competition in the Affordable Care Act exchanges.

Its lawsuit said Aetna sells insurance on the public exchanges in 15 states “and described itself as the ‘Number One’ insurer on the public exchanges. Humana also sells insurance on the public exchanges.” The lawsuit said Aetna and Humana compete on exchanges in more than 100 counties.

But in a conference call with investors Tuesday, Aetna CEO Mark Bertolini said he is reviewing the company’s participation in those 15 exchanges.

“While we are pleased with our overall results, in light of updated 2016 projections for our individual products and the significant structural challenges facing the public exchanges, we intend to withdraw all of our 2017 public exchange expansion plans, and are undertaking a complete evaluation of future participation in our current 15-state footprint,” Bertolini said.

Asked if the decision to review business on the exchanges was related to negotiations with the DOJ, Bertolini said it was based on the company’s bottom line.

“This is really a balance sheet discussion, and what happens to our capital and how bad the loss could get,” Bertolini said. He said Aetna has sustained losses of more than $300 million this year on those exchanges.

But the Aetna CEO also said the decision on the exchanges would go “into the (DOJ’s) review of markets and that’s a separate evaluation.”

Aetna was considering joining exchanges in Maine, New Jersey, Kansas, Oklahoma and Indiana.

Republicans in Congress said Aetna’s decision to reassess its involvement in the exchanges is further proof of the ACA’s failure. If Aetna pulls out of the exchanges, it will be the second large insurer to do so. United Healthcare was the first.

“The crumbling of Obamacare at this alarming rate is simply unsustainable,” Sen. John McCain, R-Ariz., said of Aetna’s decision.

Aetna sells insurance on the public exchanges in 15 states and described itself as the “Number One” insurer on the public exchanges,” the lawsuit said.

“Even as it scales back, Humana plans to continue to compete on the public exchanges in 11 states in 2017,” the DOJ said.

It also said “both Aetna and Humana remain committed to competing on the exchanges,” something Bertolini put in question on Tuesday.

Cigna’s Plan‘B’

All four insurers say they will continue to fight the Justice Department’s lawsuits to block their mergers, but many analysts see an uphill battle.

“We see the likelihood of any settlement or win for the companies in court as slim given the political nature of the outcome and the tone of the communication” from the Justice Department, Leerink Partners L.L.C. Managing Director and analyst Ana Gupte said in a research note.

Speaking on condition of anonymity, several Wall Street analysts said Tuesday they also doubted the Anthem-Cigna deal would be finalized but said there’s a chance the Aetna-Humana deal will survive.

Eight states, including Connecticut, and the District of Columbia have joined the DOJ in the suit against the Anthem-Cigna merger. 

Connecticut Attorney General George Jepsen said he did not join the suit against Aetna and Humana because Humana does not sell any Medicare Advantage or other health insurance plans in Connecticut, meaning the states consumers “will not be substantially impacted if the merger is consummated and Humana is absorbed by Aetna.

“I have chosen to focus our limited resources where competition under Connecticut law will be directly impacted,” Jepsen said.

Despite the pushback, Anthem and Cigna say they will fight the DOJ’s decision to block its tie-up, but the level of cooperation between the insurers is in question.

In its lawsuit against their merger, the DOJ said the marriage got off to a shaky start, with Cigna’s board of directors rejecting an offer from Anthem in a letter pointing to “’a number of  major issues,’ including complications relating to Anthem’s membership in the Blue Cross and Blue Shield Association.”

“The insurers also fought publicly about which CEO would lead the combined company. In the months since the agreement was signed, Anthem and Cigna have continued to quarrel over how they should integrate their two companies,” the lawsuit said.

The Justice Department said it opposed the merger because Anthem and Cigna compete vigorously in the sale of both “large group” and “individual” commercial health insurance markets

In a conference call to analysts last week to discuss second quarter earnings, Cigna CEO David Cordani said Anthem “independently decided to pursue the lawsuit with the DOJ,” but Cigna supports it, “consistent with our merger agreement.”

While Cordani said Anthem is taking the lead in fighting the DOJ lawsuit, Anthem spokeswoman Jill Becher said the companies are working together.

“Anthem is moving forward,” Becher said. “Anthem is 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.”

Also consistent with its merger  agreement, Cordani said that after the DOJ rejected the Anthem-Cigna deal “we stepped back briefly to consider our options.”

If the merger fails to go through, Cordani said he would “seek to accelerate” benefits for shareholders through other means, including “seeking to pursue growth possibilities.”

Cordani said attempts to merge with Anthem is a “dynamic process” and to protect its shareholders’ interest, the insurer will engage in “ongoing evaluation and monitoring of all options as they unfold.”

Cordani also said Cigna would have nearly $5 billion in cash that would allow the company to purchase other assets if the merger is blocked.

That money includes $2.5 billion Cigna has in cash on hand now as well as a fee of $1.85 billion fee Anthem would have to pay under certain conditions related to the deal not coming together.

“In the event the DOJ process is not successful…we have about $5 billion in available cash…and we expect to responsibly deploy that,” Cordani said.

One analyst speculated that Cigna might be interested in buying assets that Aetna and Humana may divest to win DOJ approval.