Although most health industry observers expressed optimism about the prospects of two proposed health insurance megamergers for much of the past year, few optimists remain now that the U.S. Department of Justice is suing to block Aetna from acquiring Humana and Anthem from buying Cigna.
For starters, Cigna is sending strong signals that it is not interested in pursuing the deal anymore. Bickering between its leaders and those of the would-be parent company, Anthem, has already been extensively reported on before the Justice Department's announcement last week.
"Given the nature of the concerns raised by the DOJ and the overall status of the regulatory process, which under the terms of the merger agreement was led by Anthem, Cigna is currently evaluating its options consistent with its obligations under the agreement," the company said in a statement.
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Aetna, at the very least, has projected confidence. CEO Michael Bertolini promised to fight the case with vigor and told The New York Times that he liked his chances in front of a judge.
But even if the company chooses to take the case on in court, many legal experts say their money is on the government to prevail, particularly on the Anthem-Cigna merger, which is quite a bit larger.
Leemore Dafny, a Harvard business professor who has studied Aetna's 1999 merger with Prudential told Modern Healthcare, "History is with the Justice Department," because the evidence that major health insurance mergers harm consumers is so strong.
In the case of the Aetna-Humana merger, the success of the Justice Department suit will likely hinge on whether the judge buys Aetna's argument that Medicare Advantage should not be viewed as distinct from the overall Medicare market. If the two companies merge, they will be in control of roughly a quarter of Medicare Advantage plans, but they contend that because most seniors still use traditional Medicare, their market share only amounts to 5 percent.
But as Modern Healthcare notes, even if the government succeeds in its bid to halt two planned mergers involving four giant health insurance companies, there is a strong expectation that the industry will continue to consolidate, although likely in less dramatic fashion.
The five largest insurers — UnitedHealth, Aetna, Anthem, Cigna, and Humana — are bound to try to buy up smaller companies, Jeff Loo, of Standard & Poor's, told Modern Healthcare.
"If the big five remains and if they make a bid for one of the smaller players, I don't think the Department of Justice would have that strong of an argument to stop it," he says.
Instead of going for each other, the largest insurers will likely target the second class of insurers, many of which are particularly dominant in growing niche markets, such as privately-managed Medicaid plans. Such companies include Molina, Centene, and WellCare.
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