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Federal Judge Blocks $37 Billion Aetna-Humana Merger

by Precise Leads

February 3, 2017

A federal judge has ruled that this 2016 mega-merger will not be allowed to proceed due to antitrust laws.

Last week, a federal judge temporarily blocked a $37 billion merger between Aetna and Humana, siding with the Justice Department’s claims that the merger would violate antitrust laws. Another federal judge is soon expected to make a ruling on the $48 billion deal between Anthem and Cigna.

While this decision can be appealed, it marks a major setback for the insurers who were hoping to become the nation’s largest combined provider of Medicare Advantage Plans, covering more than 4.1 million seniors. The original deal, which was announced in July 2015, faced scrutiny a year later when the Justice Department filed a suit to block the merger. If the recent judicial ruling isn’t appealed, Humana could potentially receive a $1 billion breakup fee from Aetna.

The Ruling

U.S. District Court Judge John Bates presided over the case, ruling that the merger would reduce competition for insurance consumers. “In this case, the government alleged that the merger of Aetna and Humana would be likely to substantially lessen competition in markets for individual Medicare Advantage plans and health insurance sold on the public exchanges," he wrote in his 156-page ruling. "After a 13-day trial, and based on careful consideration of the law, evidence, and arguments, the court mostly agrees."

Aetna and Humana argued that the deal would allow them to capitalize on their complementary strengths and existing relationships with healthcare providers to better serve their customers and increase efficiency — an argument which Judge Bates deemed “unpersuasive.” The judge worried that federal regulations would be unable to prevent the newly merged companies from raising prices or cutting benefits.

“The court is unpersuaded that the efficiencies generated by the merger will be sufficient to mitigate the anticompetitive effects for consumers in the challenged markets,” he wrote.

The Justice Department applauded the decision in a statement they released shortly after the ruling. “This merger would have stifled competition and led to higher prices and lower-quality health insurance,” said Deputy Assistant Attorney General Brent C. Snyder, who is in charge of the department’s antitrust division. “Aetna attempted to buy a formidable rival, Humana, instead of competing independently to win customers.”

An appeal would be an uphill battle for the companies, but some experts believe they are buying time to see if a Trump-era Justice Department would acquiesce to the merger. Trump has already taken measures through executive actions to make sweeping changes to the nation’s regulatory climate, though it is unclear if those changes would affect the court’s ruling.

Insurance Under President Trump

Two executives from the Insurance Information Institute — President and CEO Sean Kevelighan and Vice President of Data Information Services James Lynch — offered their predictions for what 2017 may hold for insurers. These include changes to “workers comp regulation, the increased prevalence of self-driving vehicles, and advances in peer-to-peer insurance, cyber insurance, and the sharing economy.”

2016 was the busiest year in nearly a decade in terms of insurance mergers and acquisitions, with the first six months seeing 232 announced deals. As changes to trade and immigration currently top the Trump administration’s list of priorities, vast changes to federal insurance regulations are unlikely, at least in the short-term. Still, it’s possible to imagine many changes to the insurance industry at the state and local levels over the next year. Moving forward, insurers and agents can only hope that state and federal regulators make insurance industry innovation and technological adaptation their top priorities.

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