21 Feb 2017

Federal Judge Blocks Aetna-Humana Merger

Federal Judge Blocks Aetna-Humana Merger

On January 23rd, 2017, it was reported that Judge John Bates, of the U.S. District Court for the District of Columbia, blocked Aetna’s proposed $37B merger with Humana, stating that such a movie is illegal under the anti-trust law.

The ruling is welcome news to those who feared that the merger could limit coverage options and “substantially lessen competition.” According to the Justice Department, if the merger were to go forward, individuals in 364 countries who were identified in the complaint, and who purchased Medicare Advantage plans, would only end up with one insurer to choose from. The merger would also reduce competition in the sale of commercial insurance in 3 counties in Florida.

The deal examines one of 2 mergers that were proposed by the largest health carriers in the nation – both were challenged by the previous administration. Another case, which involves a bigger (and currently the largest) merger ($54B) between Cigna and Anthem is expected to receive a similar ruling by another federal judge.

Aetna and Humana have the option to appeal the judge’s decision. Should the merger fail to proceed, Aetna will have to pay Humana $1B in breakup fees.

Aetna spokesman, T.J. Crawford, says, “We are reviewing the opinion now and giving serious consideration to an appeal after putting forward a compelling case.”

The health insurance industry finds itself in a bigger state of instability, with the present administration and GOP-controlled Congress having vowed to abolish the Affordable Care Act and replace it with a yet-to-be announced alternative. The judge’s decision last Monday further adds to the flux that the industry is facing.

Insurers argued that the merger is supposed to allow them to become more efficient, and the savings they get would then be passed on to the consumers. But Judge Bates said he does not think the merger would benefit the consumers, especially in markets where the two insurance carriers have a large share of the business.

The ruling came 6 months after the Justice Department fought to block both the Cigna and Aetna deals. Although analysts predict that the mergers are unlikely to succeed, anti-trust experts believe that the companies would not stop trying. Insurers are likely to try other combinations and have been gearing up their organization to face an uphill battle.

 

 

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