Health insurance industry analysts at the credit rating agency predict the Anthem/Cigna merger will be blocked, while the Aetna/Humana merger will be approved.
Aetna's proposed acquisition of Humana likely will be approved, despite opposition from the Department of Justice, but a separate mega-merger involving Anthem and Cigna likely will not, Moody's Investors Service predicts.
"With respect to the Anthem/Cigna merger, in light of the DOJ lawsuit, and the overall negative reaction to the transaction from the healthcare community and politicians, we believe that it is unlikely the merger will be approved," Moody's said in a recent sector commentary.
Anthem, Aetna Merger Suits Separated by Judge
"Our opinion also reflects the apparent discord between the two companies as reported in the press and as exhibited in their separate statements after the DOJ lawsuit was announced. As a result, our recent rating actions on these two insurers reflect their credit profiles absent a merger."
On the other hand, Moody' said there is "a reasonable probability" that the Aetna/Humana merger will be finalized, and as such, the credit outlooks for both insurers remain unchanged.
"Our opinion is based on the reported progress that Aetna has been willing and attempting to make in addressing the DOJ's concern regarding Medicare Advantage competition by selling its current block of Medicare Advantage business in certain markets," Moody's said.
If approved, the mega-mergers would consolidate four of the nation's five largest health insurance companies. On July 21, filed in U.S. District Court for the District of Columbia, alleges that Anthem's proposed $54 billion acquisition of Cigna and Aetna's proposed $37 billion merger of Humana would harm consumers and healthcare providers by limiting price competition, reducing benefits, and decreasing incentives to provide wellness programs and lowering care quality.
"These mergers would fundamentally reshape the health insurance industry. They would leave much of the multitrillion-dollar health insurance industry in the hands of three mammoth insurance companies, and restrict competition in key markets," Attorney General Loretta E. Lynch said at a news conference announcing the suits.
All four companies have said they will challenge the DOJ in court.
Moody's notes that if the Anthem/Cigna merger not be completed by Jan. 31, 2017, Anthem may owe Cigna a $1.85 billion break-up fee, although that deadline can be pushed back to April 20, 2017.
"In addition, both companies would have to implement a new non-merger strategy in a difficult political and economic climate," Moody's said.
"The combined company would have been the largest US health insurer by membership, and the company could have used this scale to negotiate lower costs and efficiencies with doctors, driving down premiums and giving Anthem a competitive advantage. It would also have provided Anthem some diversification, given Cigna's international segment and strong specialty business, and would have strengthened Anthem's presence in the commercial administrative services only segment and in the growing Medicare Advantage business."
According to Moody's, merger negotiations between Anthem and Cigna were already contentious even before the DOJ suit was filed, "with Cigna refusing multiple offers and Anthem making the details of its offers and Cigna's rejections public." In addition, the two companies gave different statements on the progress of the negotiations and the expected closing date.
Moody's notes that, by comparison, the Aetna/Humana negotiations have been relatively free of conflict, and have received less pushback from the provider community and regulators.
Aetna-Humana Merger Will Be a Hard Call for DOJ
The DOJ alleges that the merged Aetna/Humana would reduce Medicare Advantage competition for more than 1.5 million customers in 21 states, and would reduce competition in commercial health insurance to more than 700,000 people on the public exchanges in Florida, Georgia and Missouri.
"We believe Aetna has made progress in meeting the DOJ's concerns, especially with respect to Medicare Advantage," Moody's said. "Although no one can predict the outcome of the legal challenge, we think there is a reasonable chance that Aetna may prevail."