The Obama administration went to court Thursday to block two major health insurance mergers, siding with consumer advocates and medical groups worried that the consolidation of large national health plans could lead to higher premiums. The long-anticipated move by the Justice Department and attorneys general in 10 other states, including California, will at least temporarily prevent Anthem Inc.'s purchase of Cigna Corp., a combination that would have created the nation's largest health insurer. And it will stop Aetna Inc.'s bid to acquire Humana Inc., a merger that would have combined the nation's third and fifth biggest health plans. "Competitive insurance markets are essential to providing Americans the affordable and high-quality healthcare they deserve," Atty. Gen. Loretta E. Lynch said Thursday after the suits were filed in federal district court in Washington.
A federal judge Monday blocked the proposed merger of health insurers Aetna Inc. and Humana Inc. on antitrust grounds, a potentially fatal legal blow to the $34 billion deal. U.S. District Judge John D. Bates ruled the Justice Department had proven its case that the merger would unlawfully threaten competition. The judge said the transaction could mean higher prices and reduced services for seniors who purchase the private Medicare plans known as Medicare Advantage. He also said the merger would harm competition on public insurance exchanges in parts of Florida. Aetna and Humana didn't immediately respond to requests for comment.
Quarrels have broken out behind the scenes of Anthem (ANTM) 48 billion proposed acquisition of Cigna (CI)as the health insurers seek regulatory approval for their landmark deal, according to a series of letters reviewed by The Wall Street Journal. People on both sides say the squabbles could delay or derail antitrust approvals, which are typically harder to obtain if both parties aren't in sync. While neither company has sought to terminate the merger, the people say, and it doesn't appear in danger of imminent collapse, Anthem and Cigna are bickering on several fronts. In the correspondence, between top officials including their chief executives, Anthem and Cigna accuse each other of violating the July merger agreement and fumbling submissions to regulators. The finger-pointing---over matters large and small---reflects rancor that is unusual even in the cutthroat world of corporate takeovers.
Breakups are always emotional, more so when they're expensive. Let's calculate the financial carnage of Aetna's breakup with Humana, a $34-billion merger deal that was shut down by a federal judge three weeks ago and ended by the two big insurance companies on Tuesday. We figure that Aetna wasted roughly $1.8 billion, pre-tax, in pursuit of a merger that many experts said was so anti-competitive that it probably wouldn't fly. This is a good portion of Aetna's $2.3 billion in reported profit last year, on revenue of $63.2 billion. Of course, the costs are generally tax-deductible, so the U.S. taxpayer effectively is footing at least part of the bill -- perhaps one-third, based on standard corporate tax rates.
Breakups are always emotional, more so when they're expensive. Let's calculate the financial carnage of Aetna's break-up with Humana, a $34-billion merger deal that was shut down by a federal judge three weeks ago and ended by the two big insurance companies on Tuesday. We figure that Aetna wasted more than $1.4 billion in pursuit of a merger that many experts said was so anti-competitive that it probably wouldn't fly. This is more than half Aetna's $2.3 billion in reported profit last year, on revenue of $63.2 billion. Given that this is a company that whined piteously about much smaller losses on its Affordable Care Act business -- so much so that it cut loose more than 700,000 individual insurance customers to save money -- it's proper to ask what they were thinking.