First post-ACA mega merger moves forward

Health insurance giants Humana Inc. and Aetna Inc. are moving forward with Aetna’s acquisition of Humana following special shareholder meetings that approved the $37 billion agreement. More than 99 percent of both Aetna’s and Humana’s shareholders voted for the merger. This is the first of several possible mergers and acquisitions among health insurance companies looking to minimize costs due to the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148); the companies should not expect smooth sailing, however, as antitrust concerns have been raised by federal and state officials. The combined company will have over 33 million medical memberships—including individuals enrolled in Medicare, Medicaid, and TRICARE—and will be the largest Medicare Advantage (MA) provider in the country.


The ACA transformed the health insurance industry both by expanding Medicaid in many states and by requiring millions of Americans to purchase private health insurance through the exchanges. According to the New York Times, insurers view Medicare and Medicaid as potential growth areas, because the programs “are increasingly turning to private health plans to offer coverage.” With this potential growth comes more pressure to reduce costs, because exchange customers “are extremely sensitive to price,” while Medicare and Medicaid are heavily regulated and therefore, “less profitable” (see A sign of the times, mergers demonstrate change in government’s health care role, Health Reform WK-EDGE, August 26, 2015).

Aetna–Humana agreement details

Under the agreement, Aetna will acquire all outstanding shares of Humana for a combination of cash and stock valued at $37 billion or approximately $230 per Humana share based on the closing price of Aetna common shares on July 2, 2015.

Humana stockholders will receive $125.00 in cash and 0.8375 Aetna common shares for each Humana share. Aetna’s shareholders will own approximately 74 percent of the combined company, with Humana’s shareholders owning approximately 26 percent. Closing is expected to be in the second half of 2016. Following the close of the transaction, current Aetna Chairman and CEO Mark Bertolini will serve as Chairman and CEO of the combined company, and the Board of Directors will be comprised of 12 current Aetna directors and four Humana directors, for a total of 16 directors.

Antitrust concerns

A number of organizations and officials have raised questions about the antitrust implications of the Aetna–Humana deal. In September 2015, the Senate Judiciary Committee’s Subcommittee on Antitrust, Competition Policy and Consumer Rights held a hearing during which Bertolini testified. In his opening comments, Subcommittee Chairman Senator Mike Lee (R-Utah) noted that the relevant “antitrust inquiry” is “whether the combination will lead to a market concentration that may substantially lessen competition.” If the Department of Justice (DOJ) approves the Aetna–Humana deal and another pending merger between Anthem and Cigna, Lee stated that the “big five” in the health insurance industry will be reduced to the “big three.” In his comments and written testimony, Bertolini focused on the MA program and confirmed that because “Medicare is tightly regulated to protect consumers,” competition in this realm would also remain. Bertolini noted that MA beneficiaries would still have “numerous choices” for plans, that competition in the Medicare program is vigorous, and that beneficiaries would still have tools at their disposal—such as the CMS star ratings—to compare plans (see To merge or not to merge, that was the question before a Senate subcommittee, Health Law Daily, September 24, 2015).

The Texas Medical Association (TMA) also expressed its disapproval over the pending merger, telling the DOJ that Texas’ health insurance market would suffer due to the decreased competition, potentially resulting in higher prices for plans and lower prices for services. TMA said the combined company would have enhanced market power in several major Texas cities and markets including the combined health maintenance organization (HMO), preferred provider organization (PPO), and point of service plan markets. The TMA also mentioned concerns about the company’s ability to set prices for services, because if the insurer unilaterally reduced prices below the actual service costs or excluded the physician below the plan network, the practice could be forced out of business, which could jeopardize the local availability of plan services (see Not everything should be bigger in Texas: state resistant to Aetna-Humana merger, Health Law Daily, October 13, 2015).

American Medical Association (AMA) President Dr. Steven J. Stack said in a statement that the organization has “long cautioned about the negative consequences of large health insurers pursuing merger strategies to assume dominant positions in local markets.” He added, “We could have 42 percent of the U.S. population covered by three companies. Staggering, right?”

American Academy of Family Physicians President Dr. Robert Wergin shared concerns about how the mergers will affect smaller communities, saying, “Your grandmother may have seen me for 20 years. Then she signs up for Medicare Advantage and I have to tell her that I’m not in the network and she’ll have to pay for me out-of-pocket.”

The American Hospital Association (AHA) also urged the DOJ to closely scrutinize the merger, with AHA Senior Vice President & General Counsel Melinda Reid Hatton sending a letter to Assistant Attorney General William Baer, expressing the group’s concerns. Hatton suggested that a thorough investigation is needed to determine whether remedies, such as divestitures, “have any chance of ameliorating the enduring damage they could do as a result of the loss of such significant competition.” Although the insurance companies are likely to argue that the transaction would produce offsetting efficiencies, Hatton claims that this is unlikely. “As numerous economists have found, demand for health insurance is inelastic, which reduces the incentive for large health insurance companies to pass through cost savings,” she stated. “The incentives to pass savings on to consumers are further reduced due to the opaqueness of the insurance markets and the fact that costs and benefits are not fully internalized by consumers” (see AHA urges close review of Anthem-Cigna, Humana-Aetna deals, Health Law Daily, August 7, 2015).

A July 2015 analysis from the Kaiser Family Foundation (KFF) noted that if the Aetna and Humana merger proceeds, the resulting business would provide coverage to 26 percent of all MA enrollees. As an example, KFF said Humana provides coverage to more than half of the MA market in Kentucky, Louisiana, and Virginia, and over two thirds of the market in Mississippi and West Virginia. Aetna provides coverage to at least a quarter of enrollees in eight different states. Together, these two companies hold at least 50 percent of the market share in 39 counties out of the 335 counties with at least 10,000 MA enrollees (see Many Medicare Advantage enrollees may see shifts in coverage providers, Health Law Daily, July 15, 2015).

The transaction is subject to customary closing conditions, which include the federal Hart-Scott-Rodino antitrust waiting period and approvals of state departments of insurance and other regulators.