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California Insurance Regulator Opposes Anthem-Cigna Deal

By Erin Mershon, CQ Roll Call

June 16, 2014 -- California's insurance commissioner is urging the Department of Justice to block a pending $54.2 billion merger between the insurance companies Anthem and Cigna.

The recommendation is a rebuke of one of two mega-mergers for the industry. It is the first opposition from any state regulator, and comes from the commissioner for the nation's largest insurance market. The federal Justice Department and several states are still examining both the Anthem and Cigna merger as well as Aetna's separate efforts to acquire Humana.

California's insurance commissioner does not have approval authority over the Anthem-Cigna merger, unlike state regulators in 23 other states. A separate regulatory body, the California Department of Managed Health Care, is overseeing the transaction in that state and could impose conditions on the transaction.

But despite his agency's inability to block the deal, Insurance Commissioner Dave Jones can draw attention to concerns. The agency Jones oversees held a March hearing on the merger at which Anthem executives testified.

"The enhanced market power of the merged companies will permit them to increase premiums, decrease the quality of care provided to their California members in a number of the state's regions, and reduce access to crucially needed insurance markets," Jones wrote in the statement released Thursday. "The Anthem and Cigna merger will harm Californians, California's businesses and our health insurance market."

Jones charged that the companies failed to fully explain how the proposed merger would result in $2 billion in efficiencies, as they have claimed. Anthem's justifications were "vague, speculative and impossible-to-verify assertions," he wrote in a press release.

Jones also takes pains to highlight the considerable overlap the two insurers share in many of the state's insurance markets.

Anthem has a 19 percent market share statewide in California; Cigna has a 3.6 percent. The National Association of Insurance Commissioners recommendations for mergers suggest that if a larger company has a market share above 15 percent, the smaller company's market share should not exceed 1 percent.

The state's administrative services market is more extreme. Anthem has 37 percent of the market share; Cigna has 24 percent. The next largest competitor has 13 percent.

An Anthem spokeswoman said the company has been working with the state's Department of Managed Health Care for more than 10 months.

"Expanding access to affordable health coverage is the foundation of our combination with Cigna and will remain Anthem's top priority," the company said in a statement. "We do not believe that the California Department of Insurance's opinion is based on the true merits of this transaction. We are confident that the highly complementary nature and limited overlap of our organizations that will benefit the complex and competitive health insurance markets will be reviewed on the facts by the DOJ and appropriate state authorities."

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