Washington – As the first part of the antitrust trial on a proposed merger of health insurers Anthem and Cigna is wrapping up, a similar challenge to Aetna’s plan to merge with Humana is about to begin.
While both are the result of lawsuits to block the mergers filed by the U.S. Justice Department on the same day in July, the trials will be much different.
The first phase of the Anthem-Cigna trial, expected to wrap up Friday, centers on whether the $54 billion merger of those two insurers would dramatically decrease competition for “national accounts,” or plans for large, multi-state corporations.
The Justice Department also argues the merger would fail because there is friction between the companies’ CEOs and because Cigna in July stopped cooperating with Anthem on various deal-related issues.
“How do you work on integration without talking to the person you’re integrating with?” asked U.S. District Judge Amy Berman Jackson, who is presiding over the trial.
If Jackson does not rule in favor of the Justice Department, the second phase of the Anthem-Cigna trial is scheduled for Dec. 12 and will focus on whether the merger will decrease competition in dozens of local markets.
In another room in the same federal courthouse, the $37 billion Aetna-Humana merger trial is set to begin on Monday.
U.S. District Judge John D. Bates will preside over that trial. The Justice Department will argue that Aetna’s merger with Humana will dry up competition across the nation in the Medicare Advantage market.
The Justice Department says the combined companies would cover 980,000 of the 1.6 million seniors in the nation covered under Medicare Advantage plans. Aetna and Humana will argue that traditional Medicare will provide plenty of competition to their policies.
“The two cases are very different,“ said Deep Banerjee, an insurance analyst with Standard & Poor’s Global Ratings.
Banerjee said Aetna and Humana may have an edge over the other insurers. He agrees with Aetna and Humana that “the Medicare market should be looked at as a whole,” and traditional Medicare considered as competition to Medicare Advantage.
The insurers also have another card they can play, one that Anthem and Cigna do not: They have offered to divest themselves of Medicare Advantage plans in areas of high concentration.
“The divestiture may be a valuable and attractive issue for the judge to use to rule for the insurers,” said Professor Tim Greaney, co-director of the Center for Health Law Studies at Saint Louis University School of Law.
Aetna said it has an agreement to sell Medicare Advantage business covering 290,000 people to rival insurer Molina if its planned merger is allowed to be completed.
But Molina specializes in Medicaid, the government insurance for the poor, instead of Medicare Advantage, a type of health plan offered by private companies that contract with Medicare to provide coverage for the elderly.
The Justice Department is expected to argue that 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 a merger would result in what it says is an acute lack of competition.
Aetna, meanwhile, is expected to try to knock down another Justice Department complaint – that a merger would hurt competition in Affordable Care Act exchanges – by saying it is quitting most exchanges and leaving many counties in states where it still has a presence in the exchanges.
The Justice Department argued in the Anthem-Cigna case that a merger would result in higher prices, lower quality, reduced consumer choice and less innovation. It’s expected to make a similar argument in the Aetna-Humana case next week.
“Because of the offer of divestiture, the Aetna-Humana merger may have a better chance,” Greaney said. “But I think the Justice Department has a very strong argument on the merits in both cases.”
Meanwhile, David Balto, a former attorney with the Justice Department’s Antitrust Division who opposes both mergers, said the Aetna-Humana tie-up will result in more concentration than an Anthem-Cigna marriage.
“I think the competitive concerns are even greater,” Balto said. “I think the Justice Department has an even stronger case against Aetna and Humana.”
The reason, Balto said, is that the Justice Department can point to previous cases where insurers made divestitures but premiums rose sharply anyway.
He said divestitures were made in 1999 when Aetna and Prudential merged and in 2008 when United and Sierra merged and prices increased by 7 percent and 13.7 percent, respectively.
Balto said the biggest failure was the 2012 Humana-Arcadian merger, where one of the three companies that acquired business divested as part of the merger “exited the market, another company partially exited the market, and premiums increased by 44 percent.”