Daily Management Review

Market Consolidation Dealt a Blow as U.S. Court Blocks Anthem-Cigna Deal


Market Consolidation Dealt a Blow as U.S. Court Blocks Anthem-Cigna Deal
Derailing an unprecedented effort to consolidate the country’s health insurance industry, a federal judge on Wednesday ruled against U.S. health insurer Anthem Inc's proposed $54 billion merger with smaller rival Cigna Corp.
Aetna Inc's planned $33 billion acquisition of Humana and Anthem's purchase of Cigna, a deal that would have created the largest U.S. health insurer by membership, were sued to be stopped by the U.S. Justice Department in July.
Saying that the merger would have worsened an already highly concentrated market and was likely to raise prices, Judge Amy Berman Jackson of U.S. District Court for the District of Columbia issued the ruling against Anthem's deal on Wednesday.
Less competition and higher prices for Americans would be the result of both the deals, Government antitrust officials argued. The number of large national U.S. insurers would have been reduced from five to three by the acquisitions.
The Justice Department's case was separated into two trials by Jackson. The tie-up would hurt the ability of large national employers to get competitive rates for the health coverage they provide workers, the Justice Department argued and her ruling was focused only on the first one.
Administering Medicare Advantage coverage to the elderly and overlaps in the two insurers' business selling health benefits to individuals, are under consideration in the second trial.
Since large companies with more than 5,000 employees often used multiple smaller players in the national market, Anthem argued that there was enough competition. However the judge disagreed.
"Regional firms and new specialized 'niche' companies that lack a national network are not viable options for the vast majority of national accounts, and they will not ameliorate the anticompetitive effects of this merger," Jackson wrote.
The ruling had prevented American consumers from facing higher health insurance premiums and less innovation, said acting Assistant Attorney General Brent Snyder of the Justice Department’s Antitrust Division.
The decision was also hailed by Bill Baer, who was head of the Justice Department's antitrust division when it decided to sue to block both the insurance deals. "Together with the decision on Aetna and Humana, this preserves five large national providers of critically important health insurance products," he said.
The fifth player, UnitedHealth Group Inc. was not involved in the deals.
Although Aetna and Humana have not committed to doing so, some Wall Street analysts expect all four of the companies to now move on. Their deal expires Feb. 15.
"The likelihood of success in an appeal would be very low," said Matthew L. Cantor, a partner in the law firm of Constantine Cannon in New York. Points like the companies' roles as direct competitors, the high barrier to entry for competitors and the concentrated national market, present in the judge's order, were noted by him.
The four insurers were growing in the individual insurance market it established and former President Barack Obama's national healthcare reform law was fully in place when the deals were announced. Driving their need for scale was new costs, from higher taxes to investments in new Obamacare products, the insurers said.