The U.S. Justice Department is taking a hard line against apair of massive health insurance deals, filing July 21 to block 's planned with and 's for
The complaints, each backed by several state attorneysgeneral, argue that the transactions would irreparably harm competition across healthcaremarkets throughout the nation. The consolidation threatens to limit consumers'insurance choices and result in higher prices, federal officials said, whileproducing little benefit other than to pad the companies' bottom lines.
The legal action comes after nearly yearlong reviews overthe antitrust implications of combining Anthem with Cigna and Aetna withHumana. The deals would shrink the number of large publicly traded healthinsurers to three from five and broaden the combined companies' reach across arange of sectors. That raised concerns in particular about the effect that thetransactions could have the availability of coverage for large employers andseniors relying on Medicare Advantage products.
"If the 'Big Five' were to become the 'Big Three,' notonly the bank accounts of the American people would suffer but also theAmerican people themselves," U.S. Attorney General Loretta Lynch saidduring a press conference. "When the facts lead us to conclude that amerger will reduce competition, restrict choice and harm consumers, we will nothesitate to intervene."
The four companies vowed to fight the lawsuits, maintainingthat the federal government's arguments were flawed. But Cigna, which couldreceive a $1.85 billion breakup fee if its deal with Anthem falls through,warned its investorsthat the legal action would prevent its merger from closing until at least2017, "if at all."
"Anthem is responsible for coordinating communicationswith the government and developing the strategy for obtaining the necessarygovernment approvals," Cigna said in a filing. "We are confident thatwe have met all of our obligations under the merger agreement and thereforewould be entitled to the $1.85 billion reverse break-up fee if necessaryregulatory approvals are not achieved."
Although the lawsuits represent a major blow against themergers' chances, the healthcare community has long expected that Anthem andAetna could encounter regulatory opposition. The Justice Department in recentmonths signaled its skepticism of the tie-ups' proposed benefits, while stateregulators in California and Missouri expressed their opposition to or both of the deals.
Beyond the Justice Department's consumer-centric objections,the agency highlighted the potential impact on large national employers. Thoseemployers already have only four companies to choose from and would see aninsurer eliminated if Anthem purchased Cigna. Similarly, federal officials alsoworried that consolidating the largest health insurers would lessen theirincentives to innovate and find new ways to collaborate with providers for thebenefit of customers.
"Today, Anthem also competes with Cigna to sign up thedoctors and hospitals needed to provide a comprehensive healthcarenetwork," Principal Deputy Associate Attorney General Bill Baer said."All this competition would be lost as a result of the merger."
The companies had reportedly hoped to counter the JusticeDepartment's doubts by divesting business in markets around the country, butfederal officials flatly rejected those proposals.
"Those proposed remedies are incomplete andimpractical," Baer said. "They would not give the buyers of thedivested assets the necessary tools to compete with the intensity that Cignaand Humana provide today, and they would leave consumers at risk. Those areso-called solutions we cannot accept."
Baer added that the Justice Department evaluated thedivestiture ideas based on whether they would preserve the status quo fornational and state health insurance markets and concluded that there was"zero confidence" they could meet that standard.