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Merger of Big Health Insurers Raises Antitrust Concerns

By Jad Chamseddine, CQ Roll Call

July 24, 2015 -- An increase in Anthem Inc.'s offer to buy Cigna Corp. and create the country’s largest health insurer, with 53.2 million subscribers, won the tentative approval of Cigna's board in the latest deal among an escalating trend of health care mergers.

Last week's announcement follows pending deals such as Aetna Inc.’s acquisition of Humana Inc. and Centene Corp.’s acquisition of Health Net Inc.

These deals will face scrutiny by federal and state regulators over fears they will raise costs for consumers and hurt innovation in the medical field.

The concerns were underscored in a letter from Sen. Richard Blumenthal, D-Conn., following the announcement of Anthem’s acquisition in which he urged the Justice Department’s antitrust division to review all health insurance mergers together.

"I urge that you scrutinize them together as part of the single national health market, with the goal of maintaining competition and protecting consumers," wrote Blumenthal. "I urge that this scrutiny be exacting and demanding because your decisions will be enduring in market effect."

Mergers traditionally are not evaluated as part of a larger trend. Antitrust agencies view each merger separately and the effect it would have on competition and whether it would substantially reduce competition.

Blumenthal argues the merger frenzy will reduce the five largest health insurers to three and increase the number of counties where only one health insurer exists, leading to rate hikes.

"Having only one insurer in a state marketplace could drive down the quality of plans offered to consumers," said Blumenthal, a member of the Senate Judiciary subcommittee on antitrust issues. Both Aetna and Cigna are headquartered in Connecticut.

It remains to be seen whether the Justice Department or the Federal Trade Commission (FTC) will tackle the health insurance mergers. The agencies typically divide oversight of mergers based on expertise and previous exposure to certain industries in a process called clearance. The FTC has previously overseen acquisitions involving Cigna and Anthem, including Anthem’s $16.4 billion acquisition of WellPoint Networks in 2004.

Under the deal’s terms, Cigna shareholders would receive $188 per share in stock and cash, representing a 21 percent premium to Cigna’s June 19 closing price of $155.26, the last trading day before Anthem’s first offer became public.

Anthem sees no antitrust problem.

Despite earlier misgivings, the merging parties are now both confident that antitrust problems will not derail the deal, Anthem CEO Joseph Swedish said in a call late last week. But the parties did include a reverse break-up fee in the merger agreement, generally a hedge against such an antitrust lawsuit. 

Opponents' Concerns

Opponents are expected to flood regulators with calls to block these deals. Last month, the American Academy of Family Physicians, with over 100,000 members, urged FTC Chairwoman Edith Ramirez to scrutinize any deal that combines the country’s top 10 health insurers.

"Bigger insurance companies mean increased leverage and unfair power over negotiating rates with hospitals and physicians," the letter said. It also warned that consolidated companies do not necessarily translate to more efficiencies and lower costs to consumers.

The merger is further complicated by Anthem’s membership in the Blue Cross/Blue Shield Association (BCBSA), which generally limits a health insurance company to specific states. Cigna noted this problem in its initial rejection of the deal in June, when Cigna CEO David Cordani expressed concerns over BCBSA’s "intricate rules and constraints."

Swedish recently told investors the combined company would "remain Blue" without further addressing other complications brought up by its membership.

Following the announcement of the Aetna-Humana deal, Senate Majority leader Mitch McConnell, R-Ky., said the sale was the result of the Affordable Care Act and its "push toward consolidation as doctors, hospitals, and insurers merge in response to an ever-growing government." 

His concerns were shared by Rep. Marsha Blackburn, R-Tenn., who said the merger was a direct result of the law and would lead to "higher costs, fewer options, and less access."

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