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Why Insurer Mergers Will Likely Continue

News  |  By Doug Desjardins  
   February 26, 2017

Recent court decisions were a setback for insurance industry consolidation, but aren't likely to prevent future merger proposals, experts say.

This story originally appeared in California Healthfax.

Recent court decisions that blocked proposed mergers between Anthem Blue Cross and Cigna and Aetna and Humana aren't likely to dampen the enthusiasm for future mergers in California or the nation as a whole.

The proposed Aetna-Humana merger was rejected in January and a merger between Anthem and Cigna was blocked in February by federal court judges.

In both cases, courts sided with anti-trust lawsuits filed by the U.S Department of Justice (DOJ) that contend the mergers would lead to increased premiums and fewer choices for customers.

Although Anthem and Cigna have appealed their ruling, Aetna and Humana announced in early February that they will not pursue an appeal.

Aetna-Humana $37 Billion Merger Blocked on Antitrust Grounds

The court decisions were a major setback for insurance industry consolidation, but aren't likely to prevent future merger proposals. Every merger agreement is different, said Gerald Kominski, director of the UCLA Center for Health Policy Research.

"Mergers are always judged, in my experience, on the merits of the specific case and I don't think it's possible to generalize about whether mergers are more or less likely as a result of these behemoths being blocked from merging," said Kominski.

"I think, in general, that when giants want to merge, regulators get skeptical about the benefits of reducing competition."

Not all insurer mergers are destined for failure, as evidenced by federal and state regulators' approval in 2015 of the $6.3 billion merger between Centene Corp. and Health Net. That merger was nowhere near the scale of the Anthem-Cigna merger ($48 billion) or the Aetna-Humana deal ($34 billion).

CA Regulators Approve $6.3 Billion Health Net Merger With Centene

"These are four of the biggest health insurers in the country, so I don't draw any conclusions other than the government doesn't want to reduce competition in the employer-sponsored market and Medicare Advantage market by allowing mergers of companies that already have considerable market share," said Kominski.

Anthem and Cigna have decided to appeal the February 8 ruling from U.S. District Court Judge Amy Berman Jackson that blocked the merger.

In her ruling, Jackson said the merger would reduce competition in dozens of major insurance markets, including California, where Anthem and Cigna have more than 8.2 million policyholders combined.

On February 22, the U.S. Court of Appeals for the District of Columbia granted Anthem's motion for speedy appeal and scheduled oral arguments to begin on March 23.

Aetna and Humana opted not to appeal a January ruling from U.S. District Court Judge John Bates that rejected their proposed merger.

In a statement, Aetna CEO Mark Bardolino said that "while we continue to believe that a combined company would create greater value for healthcare consumers through improved affordability and quality, the current environment makes it too challenging to continue pursuing this transaction."

The failed merger carried a high price for Aetna, which must pay Humana a $1 billion break-up fee as part of their original merger agreement. If an appeals court upholds the ruling that blocked the Anthem-Cigna merger, Anthem will be on the hook for a $1.85 billion break-up fee payment to Cigna.

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