Aetna, Humana Defend Their $34 Billion Merger
09 July 2016 - 9:13AM
Dow Jones News
By Brent Kendall and Anna Wilde Mathews
Aetna Inc. and Humana Inc. face resistance from the Justice
Department to their proposed $34 billion merger and an uphill
battle persuading antitrust enforcers the deal won't harm
competition, according to people familiar with the matter.
The insurers on Friday met with top government officials in a
late-in-the-game attempt to make their case that the deal has
public benefits and won't hurt consumers, and that they could
address competitive concerns through asset sales, people familiar
with the matter said.
Aetna and Humana recently floated a package of potential
divestitures to possible buyers, and drew bids from major insurers
-- a point they made in Friday's meeting, according to a person
with knowledge of the matter.
The developments are the latest signs that federal officials are
worried about consolidation among health insurers. The Aetna-Humana
deal, along with Anthem Inc.'s proposed $48 billion acquisition of
Cigna Corp., would reshape the top of the industry, collapsing five
large insurers into three giant firms, each with annual revenues of
more than $100 billion.
Justice Department officials told Anthem and Cigna last month
that their combination would raise an array of antitrust concerns,
and they expressed skepticism that those problems could be
addressed through concessions by the companies, The Wall Street
Journal previously reported.
Many analysts believed Aetna and Humana might have a better shot
at offering concessions that would win over antitrust enforcers.
But the recent developments in the Aetna and Humana talks with the
Justice Department suggest that deal also faces difficulties.
The Justice Department cannot unilaterally block a merger, and
would have to file a lawsuit asking a judge to do so. If it does,
the companies could fight the case in court.
It isn't clear when the department will make a final call on
either of the proposed health-insurance deals, but the companies
have been preparing for a decision as soon as this month, people
familiar with the matter said.
The competition issues presented by the Aetna-Humana deal differ
from the Anthem-Cigna transaction. With Anthem and Cigna, antitrust
officials raised worries about the effects on the market for
administering the health benefits of national employers, among
other areas.
The full scope of the Justice Department's views on the
Aetna-Humana transaction couldn't immediately be learned. But a
significant part of its concerns focus on how the deal could reduce
competitors in the market for private Medicare coverage, people
familiar with the matter said.
An Aetna-Humana combination would become the biggest seller of
Medicare Advantage plans, as well as the second-largest health
insurer by revenue with about $115 billion combined based on 2015
totals. Medicare Advantage plans are offered by private companies
that are paid by the government to provide the benefits.
Humana shares fell nearly 3% on Friday to $158.15 while Aetna's
gained 1% to $177, both in 4 p.m. New York trading.
Humana has a Medicare Advantage membership of about 3.18
million, or 17% of the national market for private Medicare plans,
and Aetna has around 1.37 million, or 7%, according to Wells Fargo
analysts. The largest Medicare Advantage insurer, UnitedHealth
Group Inc., has 3.86 million members, a 21% share.
Regionally, the combined Aetna-Humana market share would be
greater. Among the areas of greatest overlap are regions in Ohio,
Florida and Missouri, according to analysts. Missouri's insurance
regulator has already thrown up a roadblock to the merger in its
state, saying the companies' combined individual Medicare Advantage
market share was more than 50% statewide and above 90% in some
counties. However, Aetna won approval from Florida regulators with
no divestitures.
Aetna has argued that focusing on Medicare Advantage market
share is misleading, since the majority of Medicare beneficiaries
don't opt for the private plans -- they choose traditional Medicare
coverage offered directly by the federal government.
This government option ensures competition, Aetna officials have
said, and some state regulators have agreed with that view. Aetna
also points to the diversity of entrants into the business,
including hospital systems that offer Medicare plans.
Aetna's arguments, however, have run into differing analytical
views by the Justice Department, which has looked at Medicare
Advantage as a competitive market distinct from traditional
Medicare. It embraced that approach in 2012 when it required Humana
to shed assets to proceed with its acquisition of Arcadian
Management Services Inc.
Because the Medicare business is largely local, with insurers
competing for individual consumers at a county level, Aetna and
Humana have hoped to address concerns about lost competition by
transferring some business in certain regions to other
companies.
Write to Brent Kendall at brent.kendall@wsj.com and Anna Wilde
Mathews at anna.mathews@wsj.com
(END) Dow Jones Newswires
July 08, 2016 18:58 ET (22:58 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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