Aetna Said to Meet with DOJ on Friday about Humana Deal

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Aetna Inc. (Hartford CT) executives met with top Justice Department antitrust officials on Friday to convince the government that asset sales it proposed would address potential competitive problems that could threaten its deal to buy rival Humana Inc. (Louisville KY), according to a source familiar with the matter.

Aetna’s plan to buy Humana would combine two of the largest providers of Medicare Advantage plans for elderly people, and investors are concerned that antitrust regulators could oppose the deal, Reuters reported.

The Justice Department’s Antitrust Division is assessing both Aetna’s $34 billion merger as well as Anthem Inc.’s (Indianapolis IN) $44 billion deal to buy rival Cigna Corp. (Bloomfield CT). The two mergers, if they close, would reduce the number of big, national health insurance companies from five to three.

In the meeting on Friday, Aetna argued that asset sales it was proposing would fix any potential competition problems that the deal creates, the source said, adding that major players were interested in acquiring them. The source did not specify which assets were on the chopping block.

Reuters reported the week prior that Aetna had begun the process of auctioning off about $1 billion of Medicare Advantage assets to address antitrust concerns.

Before the meeting, the Justice Department had significant concerns about the deal, Reuters reported on Thursday. It was not known if antitrust enforcers planned to file a complaint to stop the deal or would accept the divestiture package and allow the deal to go forward.

In the review, antitrust regulators are focused on whether the deal would limit consumer choices for Medicare Advantage health plans for the elderly, a separate source familiar with the matter said.

Aetna has argued that Medicare Advantage competes not just with other Medicare Advantage plans but with traditional Medicare, which is managed by the government with data showing consumers switch between them. The Justice Department has previously disagreed with that approach, according to antitrust experts.

Aetna closed the week down 2% at $117.00, while Humana skidded 9% to $158.15.

Consumers Union, Consumer Federation of America, Consumer Action, Families USA, U.S. PIRG (Public Interest Research Group), and Consumer Watchdog issued a white paper on Thursday which argued that divestitures could not counter the harm done by the two massive mergers, at least partially because it would be contracts rather than solid assets that are divested.

“In the next open season, it is all too easy for the merged firm to solicit and secure former policyholders, thus recreating the original conditions and eviscerating the remedy,” the groups said.

Aetna has said that the acquisition will help it achieve scale that can drive down medical costs as well as provide better value-based care for consumers.

Steve’s Take: Consumers Union, et al, make a strong but relatively unnoticed argument for why the DOJ should look much harder at Aetna’s planned asset sales, which the giant insurer believes should permit the deal with Humana to go forward.

The planned divestitures would be contracts, not solid assets. They point out that in the next open season following the transaction, the merged firm could easily reacquire former policyholders with whatever marketing campaign they believe would be effective. That’s a whole different story than giving up hard assets like cash, for example, where there’s no easy way to get it back.

If the Aetna deal goes through and Anthem’s takeover of CIGNA closes, they would reduce the number of the biggest health insurance companies from five to three, including UnitedHealth. But who’s left to compete with these big three?

Currently, Humana is the “smallest” of the five insurers I just mentioned with a market value of $27.2 billion and annual sales of $48.5 billion. Next in line is Centene Corp., with a market value of $8.7 billion and annual sales of $16.7 billion. That makes Centene just one third as “big” as Humana.

Does anybody really expect companies like Centene, HealthNet, WellCare and Mollina to compete with the “big three”?

And when Aetna says its acquisition of Humana will help it “achieve scale” that will reduce medical costs and provide better “value-based” care, let’s get serious. These are all for-profit corporations, dedicated to enhancing shareholder value first and foremost, no matter what they say about caring for their policyholders.

The two proposed mergers will absolutely decrease competition in the industry just looking at the huge difference in market values and sales of the “big three” and the next group. Market share is power.

It’s a fascinating game of chicken that’s unfolding, and the government, both the DOJ and possibly the courts, have their work cut out in enforcing the antitrust laws for us rank and file citizens.