Big Insurers Defend $34 Billion Merger

Aetna Inc. and Humana Inc. face resistance from the Justice Department to their proposed $34 billion merger and an uphill battle persuading antitrust enforcers the deal won’t harm competition, according to people familiar with the matter.

The insurers on Friday met with top government officials in a late-in-the-game attempt to make their case that the deal has public benefits and won’t hurt consumers, and that they could address competitive concerns through asset sales, people familiar with the matter said.

Aetna and Humana recently floated a package of potential divestitures to possible buyers, and drew bids from major insurers—a point they made in Friday’s meeting, according to a person with knowledge of the matter.

The developments are the latest signs that federal officials are worried about consolidation among health insurers. The Aetna-Humana deal, along with Anthem Inc.’s proposed $48 billion acquisition of Cigna Corp., would reshape the top of the industry, collapsing five large insurers into three giant firms, each with annual revenues of more than $100 billion.

Justice Department officials told Anthem and Cigna last month that their combination would raise an array of antitrust concerns, and they expressed skepticism that those problems could be addressed through concessions by the companies, The Wall Street Journal previously reported.
Many analysts believed Aetna and Humana might have a better shot at offering concessions that would win over antitrust enforcers. But the recent developments in the Aetna and Humana talks with the Justice Department suggest that deal also faces difficulties.

The Justice Department cannot unilaterally block a merger, and would have to file a lawsuit asking a judge to do so. If it does, the companies could fight the case in court.

It isn’t clear when the department will make a final call on either of the proposed health-insurance deals, but the companies have been preparing for a decision as soon as this month, people familiar with the matter said.

The competition issues presented by the Aetna-Humana deal differ from the Anthem-Cigna transaction. With Anthem and Cigna, antitrust officials raised worries about the effects on the market for administering the health benefits of national employers, among other areas.

The full scope of the Justice Department’s views on the Aetna-Humana transaction couldn’t immediately be learned. But a significant part of its concerns focus on how the deal could reduce competitors in the market for private Medicare coverage, people familiar with the matter said.

An Aetna-Humana combination would become the biggest seller of Medicare Advantage plans, as well as the second-largest health insurer by revenue with about $115 billion combined based on 2015 totals. Medicare Advantage plans are offered by private companies that are paid by the government to provide the benefits.

Humana shares fell nearly 3% on Friday to $158.15 while Aetna’s gained 1% to $177, both in 4 p.m. New York trading.

Humana has a Medicare Advantage membership of about 3.18 million, or 17% of the national market for private Medicare plans, and Aetna has around 1.37 million, or 7%, according to Wells Fargo analysts. The largest Medicare Advantage insurer, UnitedHealth Group Inc., has 3.86 million members, a 21% share.

Regionally, the combined Aetna-Humana market share would be greater. Among the areas of greatest overlap are regions in Ohio, Florida and Missouri, according to analysts. Missouri’s insurance regulator has already thrown up a roadblock to the merger in its state, saying the companies’ combined individual Medicare Advantage market share was more than 50% statewide and above 90% in some counties. However, Aetna won approval from Florida regulators with no divestitures.

Aetna has argued that focusing on Medicare Advantage market share is misleading, since the majority of Medicare beneficiaries don’t opt for the private plans—they choose traditional Medicare coverage offered directly by the federal government.

This government option ensures competition, Aetna officials have said, and some state regulators have agreed with that view. Aetna also points to the diversity of entrants into the business, including hospital systems that offer Medicare plans.

Aetna’s arguments, however, have run into differing analytical views by the Justice Department, which has looked at Medicare Advantage as a competitive market distinct from traditional Medicare. It embraced that approach in 2012 when it required Humana to shed assets to proceed with its acquisition of Arcadian Management Services Inc.

Because the Medicare business is largely local, with insurers competing for individual consumers at a county level, Aetna and Humana have hoped to address concerns about lost competition by transferring some business in certain regions to other companies.

Source Link