Washington – In its court battle to block the merger of Anthem and Cigna, the U.S. Justice Department plans to use Connecticut’s market as a prime example of why increased consolidation in the health insurance field would hurt consumers.
Depending on the area of the state, Anthem is the largest seller of individual and group policies, with either Cigna or Aetna in second or third place, said Connecticut Attorney General George Jepsen, who has joined the lawsuit along with his counterparts in 10 other states and the District of Columbia.
“It was clear to us, with our casual knowledge of the other states, that if Connecticut had not decided to participate in the lawsuit, (the state) would have been a focal point of the case anyhow,” Jepsen said.
The federal lawsuit against the Anthem-Cigna merger, and a twin lawsuit against a proposed merger between Aetna and Humana, both filed on July 21, promise to be among the greatest antitrust battles the Justice Department has undertaken.
Dozens of lawyers are involved – Anthem alone has 38 attorneys assigned to the case – thousands of pages of court documents have already been filed and millions of dollars will be spent on persuading federal judges during the holiday season that the consolidations will either hurt consumers or create efficiencies that will spur innovation and cut health care costs.
A lot is at stake if for the insurers if the merger is not approved. Aetna must pay Humana a $1 billion breakup fee if the deal does not go through. Anthem would pay a breakup fee to Cigna of $1.85 billion. The result of the lawsuits will impact millions of Americans.
Jepsen is working to bolster the case against his wife’s former employer – Cigna – because he is convinced, as is the Justice Department, that it would suppress competition.
He said the overlap of Anthem’s and Cigna’s markets is greatest in the state’s largest metropolitan areas, Hartford, New Haven, Bridgeport-Stamford, New London and Torrington.
Because of the outsized impact of the merger on them, Connecticut, and California will serve as co-lead counsels to the Justice Department in the Anthem-Cigna case, Jepsen said. Connecticut Assistant Attorney General Rachel Davis will serve as a liaison with the other states that have joined the lawsuit and attend depositions.
Insurers win early victories
The insurers have won some early victories.
Judge Amy Berman Jackson of the U.S. District Court for the District of Columbia, who has been assigned the case against Anthem and Cigna, and Judge John D. Bates, who will hear the Aetna-Humana case, have granted the insurers’ requests for expedited court schedules.
The Anthem-Cigna trial will begin on Nov. 21 and last until Dec. 30, with a decision on Jan. 4. The companies’ merger agreement expires in April 2017.
The Aetna-Humana trial will begin on Dec. 5 and last until Dec. 21, with a decision on Dec. 30.
Under its agreement with Humana, Aetna is required to complete its merger by the end of the year, but the insurer has indicated it will move to extend that deadline under a new agreement with its partner.
The relationship between Anthem and Cigna in this court fight hasn’t been as smooth.
Speaking to investors in early August, Cigna CEO David Cordani said, “Anthem independently decided to pursue the lawsuit with the DOJ.” He said that while Cigna will fulfill its contractual obligations to fight for the merger, it will continue to evaluate its options as they unfold.”
In its legal answer to the Justice Department’s complaint, Cigna said that “after entering into a $54 billion merger agreement, Anthem and Cigna have disagreed over certain issues, including integration planning.”
To bolster its case, the Justice Department has asked Anthem and Cigna to produce documents that detail escalating “governance disputes” between the two companies, arguing they prove that the deal would not go as smoothly as the insurers claim.
The insurers won a break when the Justice Department decided last month to drop one of its major arguments against the merger – that it would reduce competition in many of the Affordable Care Act’s health exchanges.
The DOJ said it was amending its complaint “in light of the expedited discovery and trial schedules in this case.”
But the Justice Department also said it did not waive its right “to pursue any allegation or claim related to the markets referenced in (its complaint) in any separate litigation or administrative proceeding outside of this case.”
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The Justice Department says a merger between Aetna and Humana will shrink competition in “Medicare Advantage” plans, an alternative for many seniors to traditional Medicare.
“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,” the DOJ complaint says.
In its legal response, Aetna rebuts the allegation, saying, “The efficiencies generated from the proposed transaction will allow the merged company to provide better and more cost-effective health insurance products to American consumers, including seniors and low- and moderate-income individuals and families”
The insurer argues that the merger “will combine two companies with complementary businesses, cultures, and philosophies, and foster more rapid innovation by allowing the merged company to lower its costs, pass those savings on to its customers, and build on the best approaches of the legacy companies in ways (and on a timetable) that cannot occur without the transaction.”
As far as shrinking competition, Aetna argues the federal government’s traditional Medicare program will continue to provide robust competition to its merged Medicare Advantage plans.
Aetna and Humana also have entered into an agreement to sell Molina Healthcare their Medicare Advantage business in 364 geographical markets the DOJ determined would suffer the most from a lack of competition.
The Justice Department, however, says the divestiture isn’t big enough and “nothing would prevent these enrollees,” who may have to switch doctors and hospitals, “from simply switching back to to the Aetna or Humana plan they had originally chosen.”
“Having lost these enrollees, the buyer would not restore the competition that had existed between Aetna and Humana,” the DOJ complaint says.
Anthem’s aggressive defense
Anthem and Cigna have disputed dozens of DOJ allegations, including the way the federal government has determined a market would be uncompetitive, putting pressure on the Justice Department to present its case in an expedited time.
The DOJ has been frequently put on the defensive. On Oct. 1, it asked the court to deny Anthem its request for the federal government’s “pre-complaint” market share calculations, arguing they are “privileged information.”
In its court filings Anthem has based its defense on several arguments.
One is that its policies tend to cost less than Cigna’s and that a combined company will result in lower premiums. Companies that self-insure and whose policies are administered by the merged company will benefit from its ability to drive down payments to providers and hospitals and those companies will pass along the savings to their workers, Anthem said.
It also said the DOJ “admits facts demonstrating that the portion of the $3 trillion in U.S. healthcare spending represented by the combined revenues of Anthem and Cigna is only 3.9 percent.”
It also said that, although Anthem and Cigna are major players in the group insurance market, their overlap is “geographically limited.”
Anthem also argued “new and rapid entry, as well as expansion, by competitors will ensure that there will be no harm to competition, consumers, or consumer welfare.”
David Balto, a former policy director of the Federal Trade Commission who counsels companies on antitrust matters, said the attempt to block the mergers “is one of the biggest actions taken by the Justice Department.”
Balto belongs to a large coalition, including consumer groups, the American Medical Society and the American Hospital Association, who opposed the insurer mergers.
He said the Justice Department will be aided by years of studies by economists who have determined previous insurer consolidation has resulted in higher premiums and poorer care.
“The Justice Department has a compelling, clear story about why these mergers should not happen,” he said.