A
federal judge on Wednesday ruled against U.S. health insurer Anthem Inc's
(ANTM.N) proposed $54 billion merger with smaller rival Cigna Corp (CI.N),
derailing an unprecedented effort to consolidate the country's health insurance
industry. The U.S. Justice Department sued in July to stop Anthem's purchase of
Cigna, a deal that would have created the largest U.S. health insurer by
membership, and Aetna Inc's (AET.N) planned $33 billion acquisition of Humana
(HUM.N).
The
merger would have worsened an already highly concentrated market and is likely
to raise prices, Judge Amy Berman Jackson of the U.S. District Court for the
District of Columbia said while issuing the ruling against Anthem's deal. Last
month, a different U.S. judge ruled against Aetna's proposed deal for Humana.
Government
antitrust officials argued that both deals would lead to less competition and
higher prices for Americans. The acquisitions would have reduced the number of
large national U.S. insurers from five to three.
Jackson
had separated the Justice Department's case into two trials. Her ruling focused
only on the first one in which the Justice Department argued that the tie-up
would hurt the ability of large national employers to get competitive rates for
the health coverage they provide workers.
The
second trial considered overlaps in the two insurers' business selling health
benefits to individuals, and administering Medicare Advantage coverage to the
elderly. Anthem argued that there was enough competition because large
companies with more than 5,000 employees often used multiple smaller players in
the national market, but 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. Cigna
intends to carefully review the opinion and evaluate its options in accordance
with the merger agreement, it said in a statement. An Anthem spokeswoman
declined to comment on the matter.
***PROTECTING
CONSUMERS***
Acting
Assistant Attorney General Brent Snyder of the Justice Department's Antitrust
Division said the ruling had prevented American consumers from facing higher
health insurance premiums and less innovation.
Bill
Baer, who was head of the Justice Department's antitrust division when it
decided to sue to block both the insurance deals but has since left the agency,
also hailed the decision. "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. (UNH.N) was not involved in the deals. Some
Wall Street analysts expect all four of the companies to now move on, although
Aetna and Humana have not committed to doing so. 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. He noted
points in the judge's order about the concentrated national market, the high
barrier to entry for competitors, and the companies' roles as direct
competitors.
The
deals were announced at a time when former President Barack Obama's national
healthcare reform law was fully in place and the four insurers were growing in
the individual insurance market it established. The insurers said new costs,
from higher taxes to investments in new Obamacare products, were driving their
need for scale.
That
landscape is less certain now. Aetna and Humana have cut back Obamacare
enrollment for 2017 after losses, and President Donald Trump and fellow
Republicans are weighing a "repeal and replace" path for Obamacare. More
deals may be in the offing, JPMorgan analyst Gary Taylor said in a research note.
"Given Anthem and Cigna's pursuit of Humana in 2015, we think new
potential combinations could emerge." He does not expect shares in either
Anthem or Cigna to move given that investors had expected this ruling.
Cigna
is entitled to receive from Anthem a $1.85 billion break-up fee if the deal
fails to win regulatory approval, according to the merger agreement. The
agreement also requires Cigna to have put forth its best effort on that front. But
Anthem and Cigna disagreed about the deal in court, Jackson wrote in her order,
with Cigna refusing to sign off on Anthem's interpretation of how the companies
could garner savings.
Anthem
is the largest member of the Blue Cross Blue Shield Association and operates
BCBS plans in 14 states. It and said it could apply its discounts to Cigna
members while Cigna said its collaborations with doctors would save money.
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