Aetna shares fell 3 percent to $129.45 while Humana dropped 2.3 percent to $208.83.

Market share

The government argues the Aetna-Humana deal would eliminate competition between the insurers in 364 counties in 21 states and likely force seniors to pay higher premiums for Medicare Advantage, the government-subsidized insurance program for the elderly.

The Justice Department says any attempt to restore competition by Molina’s entry fails because Molina wasn’t successful in its previous foray into the Medicare market. It once offered Medicare Advantage plans in 63 counties and now offers plans that enroll only 424 people, the government said.

Aetna counters that the Medicare market is much larger than the Justice Department claims because it includes both Medicare Advantage plans and original Medicare, providing more choice for seniors than the government portrays. The U.S. view also ignores the power of the Center for Medicare and Medicaid Services, which oversees the program, to regulate the market, Aetna says.

The government argues that Medicare Advantage is a distinct market partly because seniors rarely switch, giving the combined company more power over that market because the deal would eliminate one of their options. About 78 percent of Medicare Advantage enrollees remain with that program from year to year, according to 2013-14 data, said Richard Frank, a Harvard University health-care economics professor, and the government’s first witness. Frank, a former U.S. Department of Health and Human Services official, testified that just 11 percent will voluntarily change carriers, 5 percent due so involuntarily and 3 percent die. Just 2 percent are likely to transfer to traditional Medicare, he said.

Even if the markets were separate, Aetna says the asset sale to Molina, with revenue of $14 billion in 2015, would establish a robust competitor against a combined Aetna and Humana.

"This isn’t some feeble little company," Aetna lawyer John Majoras said.

The other market at issue in the lawsuit is the public exchanges established by Obamacare where individuals buy insurance. Hartford, Connecticut-based Aetna in August announced it would stop selling Obamacare coverage in 11 of the 15 states in which it participated in the program, including all 17 of the Florida, Georgia and Missouri counties where the U.S. has claimed its merger with Humana would decrease competition.

The U.S. argues that Aetna’s withdrawal was aimed at undermining the government’s case and said that nothing prevents Aetna from re-entering those markets after sitting out a year.

"The court shouldn’t look at the closed sign, but at the store behind it," Conrath said.

While the ACA was meant to make health insurance more accessible and more affordable to tens of millions of people who lacked coverage, the law has been beset by legal and political opposition. Enrollment has fallen short of estimates and financial losses have prompted some companies to withdraw from the market.

Majoras, Aetna’s lawyer, said the decision to leave the exchanges was driven entirely by financial reasons. The insurer’s losses "were huge," he said. With Aetna out of the exchanges, they shouldn’t be part of the government’s case, he said.

"There is no competition," Majoras said. "There’s nothing to fix here."

The case is U.S. v. Aetna Inc., 16-cv-01494, U.S. District Court, District of Columbia (Washington).

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