July 21, 2016
BY CAROLINE HUMER AND CARL O'DONNELL
(REUTERS) U.S. antitrust officials on Thursday moved to block an unprecedented consolidation of the national health insurance market, filing suit against Anthem Inc's (ANTM.N) proposed purchase of Cigna Corp (CI.N) and Aetna Inc's (AET.N) planned acquisition of Humana Inc (HUM.N).
The U.S. Department of Justice said the two mergers would reduce competition, raise prices for consumers and stifle innovation if the number of large, national insurers were to fall from five to three.
"We will not hesitate to intervene. We will not shy away from complex cases," U.S. Attorney General Loretta Lynch told a news conference. "We will protect the interests of the American people."
The mergers would create an unacceptable risk of higher insurance premiums on the exchanges created under President Barack Obama's national healthcare reform law, said Principal Deputy Associate Attorney General William Baer, who spearheaded the antitrust reviews. "We have no doubt that these mergers would reduce competition from what it is today."
In the suit against Aetna, the Justice Department cited specific concerns about damage to 1.6 million people in 364 counties who are customers of Medicare Advantage, the program that serves older people. It also said there were issues for those individual plans, where the government has been trying to spur competition and keep prices low.
In the suit against Anthem-Cigna, the antitrust regulators said the $45-billion combination would substantially lessen competition in an already consolidated industry, harming millions of Americans, doctors and hospitals.
The Justice Department said it was concerned about the impact on the national corporate business, which serves large companies that employ workers around the country and it said has only four competitors.
It also said there were issues with local business markets, the individual exchanges and the impact that a combined company could have on contracts with doctors.
Aetna and Anthem had proposed asset sales to the regulators, but they did not create strong enough competitors and they did not solve the issues, Baer said.
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Cigna said it was currently evaluating its options. It does not believe the transaction would close in 2016, and the earliest it would close would be in 2017, "if at all."
Aetna and Humana said they plan "to vigorously defend the companies’ pending merger," which is worth $33 billion.
Eleven states and the District of Colombia joined the DOJ suit against Anthem and Cigna; eight states and DC joined the suit against Aetna and Humana.
There are currently five national health insurers, and the deals would reduce that number to three. The health insurers have argued that the deals would help them lower prices for consumers by expanding their reach at a time when the nation is facing a constant price rise.
Antitrust regulators had been expected to file lawsuits aimed at blocking both deals by the end of next week, Reuters reported earlier this week.
Humana raised its 2016 earnings forecast on Thursday, saying its core businesses, Medicare Advantage and Healthcare Services, are doing better than expected.
Humana shares rose 7.4 percent to $170.11. Cigna, Aetna and Anthem shares were all up about 3 percent.
Humana’s significant outlook increase was helping fuel its shares, while “the strong wording from their press releases as far as their intention to fight the Justice Department in court over these lawsuits I think has encouraged a lot of investors,” said Morningstar analyst Vishnu Lekraj.
“I don’t know how successful they’re going to be in court in fighting this,” Lekraj added.