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Missouri Regulator Moves to Block Aetna-Humana Deal

By Erin Mershon, CQ Roll Call

May 25, 2016 -- Missouri's insurance regulator is taking the first steps toward blocking the proposed merger of insurance giants Aetna and Humana in the state, the first time a state regulator has fought against the pending deal.

The Missouri Department of Insurance filed a preliminary motion opposing the merger Tuesday, saying that the $37 billion proposed merger would "substantially lessen competition in the state" in the individual, small group, and Medicare Advantage markets. The motion gives Aetna and Humana 30 days to offer remedies that would address the outlined harms.

It's a limited step: even if the regulator finalizes its opposition, the overall merger can still proceed. But the argument still underscores the precarious position for Aetna and Humana, as well as their competitors, Anthem and Cigna, which are together seeking approval for their own $54.2 billion merger. The U.S. Department of Justice (DOJ) has yet to approve either arrangement.

Missouri's opposition can serve as a "roadmap" not only for other regulators, but for the Justice Department as it evaluates the deal, said David Balto, an antitrust attorney who represents consumer and provider groups who oppose the merger. He called the order a "tremendous victory for consumers."

"This really steps Aetna back severely," he said. "The Justice Department will say, 'You couldn't even convince the insurance commissioner in Missouri [the deal isn't anticompetitive]? How in the world are you going to convince a federal judge of that?'"

Aetna remains confident the overall deal will proceed and is committed to working with Missouri regulators toward remedies that would mitigate their concerns, company spokesman T.J. Crawford said.

"This order does not impede the DOJ approval process," he said. "We are disappointed with the Missouri order but expect to have a constructive dialogue with the state to address their concerns."

Executives for both companies said on recent earnings calls that they expect the overall merger to be approved in the second half of this year.

Twenty states—which do not include Missouri—have the power to stymie the merger. In those states, officials must agree to allow local Humana subsidiaries to be taken over by Aetna in what is known as a "change of control approval." The Aetna-Humana deal has already been cleared by 15 of those 20 states.

Those states and others where Aetna and Humana are major market players, like Missouri, can undertake a separate process to investigate the competitive impacts of the merger on consumers. If a state uses that process to oppose the merger, it can consider preventing the companies from combining within the borders of the state. State attorneys general can also launch their own antitrust investigations or work with the DOJ.

In comments to the Missouri Department of Insurance, consumer advocates in the state outlined the higher premiums, fewer benefit choices and lessened quality they expect to result from the merger. Many focused specifically on the Medicare Advantage market, in which Humana is a major player and in which the two companies currently compete directly. Provider groups, including state and national hospital and physician organizations, also weighed in, opposing the merger.

Aetna and Humana executives, meanwhile, argue that the deal will result in increased efficiency and savings that will be passed on to consumers. They say it will improve their bargaining power with providers that are also consolidating and growing their market shares.

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