Federal Judge Amy Berman Jackson of the U.S. District Court for the District of Columbia has blocked the proposed landmark merger of insurance giants Anthem and Cigna.
This ruling follows a ruling last month by the U.S. District Court that blocked the competing mega merger of Aetna and Humana. The Department of Justice (DOJ) was successful in convincing the federal judge that both mergers would result in reduced competition in health insurance markets and would harm customers.
In both cases, the insurance giants argued that any anticompetitive effects will be counterbalanced by the administrative efficiencies the mergers would produce. The companies contend that the combining of their companies would result in cost savings that would ultimately be passed on to consumers in the form of less-expensive insurance products. In both cases the court concluded that the claimed cost savings are not merger-specific nor are they verifiable.
Additionally, the court found that the merger would “eliminate the two firms’ vigorous competition with each other for national accounts, reduce the number of national carriers available…and diminish the prospects for innovation in the market.” These four companies, along with UnitedHealth make up the top five largest insurance companies in the country. If the mergers were completed, the five largest health insurance companies would have been reduced to three with a large gap between the top three and all of the other companies.
The $48 billion dollar Anthem/Cigna merger would have combined the nation’s second and third largest health insurance carriers. Per the terms of the merger agreement, if the merger fails, as seems likely, Anthem must pay Cigna a $1.85 billion “breakup” fee. In addition to this fee, Cigna has filed a lawsuit against Anthem seeking $13 billion in damages for harm allegedly suffered by Cigna shareholders.
Anthem vowed to appeal Judge Jackson’s ruling against the Anthem-Cigna merger.
Aetna and Humana have announced that they will end their merger agreement and will not appeal the ruling in their case. Per the terms of their merger agreement Aetna will pay Humana a $1 billion “breakup” fee for the failed merger.
The American Medical Association (AMA) is concerned that Anthem and Cigna are continuing to negotiate with the DOJ for an acceptable merger deal. The AMA wrote a letter to the Justice Department opposing this type of settlement. The AMA cites remarks made in court by an Anthem attorney expressing optimism that the Trump Administration is more willing to accept the merger than the Obama Administration.
Congress is also paying increased attention to anti-trust issues in the health insurance industry.
Representative Paul Gosar (R-AZ) introduced a bill that exempts the “business of health insurance” from certain anti-trust laws. The bill is intended to foster greater competition in the health insurance industry. The bill was featured in a hearing by the House Judiciary Committee where it awaits further action. Others have introduced similar legislation in the past but none have become law.
In an unrelated matter, UnitedHealth, the nation’s largest health insurance company, found itself in the DOJ’s crosshairs but for very different reasons. The DOJ joined a False Claims Act whistle-blower lawsuit accusing the insurer of exaggerating risk scores on Medicare Advantage (MA) claims. Final disposition of this case may take a while to resolve.