Breaking Up Is Hard to Do: Insurance Mergers Denied
Federal judges recently blocked the mergers of Aetna-Humana ($34 billion transaction) and Anthem-Cigna ($48 billion transaction). Both of these mergers were also targeted by the U.S. Department of Justice for potentially violating anti-trust laws.
These judgements have avoided a movement toward further insurance industry consolidation (i.e., the introduction of the “Big 3” United, Aetna and Anthem). This consolidation would have provided these large insurance companies with additional control of the price of premiums, benefits provided, and the administrative costs of supervising self-insured plans.
Health care providers (e.g., hospitals, surgery centers, physicians) would be unable in certain geographies to negotiate better terms with these organizations. The insurance industry consolidation would force further provider-side consolidation to avoid potential insolvencies that could lead to bankruptcies.
The insurance industry has argued that larger insurance companies could provide more efficient services to consumers. However, where are the competitive checks and balances for pricing and service for a couple of companies that control the market?
The DOJ and federal judges have seemingly helped the health care insurance market maintain its competition and its ability to negotiate reasonable terms to provide business services to end users.
Aetna-Humana have accepted the decision of the courts and are not pursing further action. However, Aetna owes Humana a breakup fee of $630 million after taxes. As for Anthem-Cigna, Cigna is claiming a $1.85 billion termination fee from Anthem. However, Anthem may appeal both the merger decision and grounds for the breakup fee.