Aetna, Humana plan separate futures after dissolving merger plans

Aetna Inc. and Humana Inc. announced the termination of their merger agreement as a mutual decision following a January 2017 federal district court ruling enjoining the merger. Aetna is now on the hook for a $1 billion “breakup fee” to Humana, as well as a termination fee for ending its agreement to sell Medicare Advantage (MA) assets to Molina Healthcare, Inc. (Molina).

Merger enjoined

In the decision enjoining the merger, the D.C. District Court focused on the merger’s impact in the MA market, and believed that the divestiture of some MA assets was insufficient to alleviate antitrust concerns (see Aetna’s $47 billion purchase of Humana enjoined, January 23, 2017). The Molina deal involved two separate agreements with the merging companies, which would have resulted in Molina gaining about 290,000 MA members for a total of about $117 million in cash. The federal government also challenged the merger’s potential anticompetitive effect on the health insurance marketplaces, even after Aetna’s withdrawal from the marketplaces in 11 states for the 2017 plan year. The court agreed with the government, finding that Aetna withdrew from competing in the 17 complaint counties for 2017 specifically to evade judicial scrutiny of the merger.

Aetna

Aetna’s Chairman and CEO Mark Bertolini stated that pursuing the merger further would be “too challenging,” despite Aetna’s belief that a combined company would benefit consumers. Bertolini noted that the companies have spent 19 months planning the deal, and spoke of Aetna and Humana’s mutual respect. Although the companies will now move forward separately, they share the goal of moving toward a health system centered on consumer needs.

On or about March 16, 2017, Aetna will redeem a large number of senior notes for cash, all of which were due at some point from June 2019 through June 2046. Aetna will fund this redemption with the proceeds of notes issued last year.

Humana

Humana’s initial press release was briefer than Aetna’s, announcing the mutual termination of the agreement and the expectation of receiving about $630 million from Aetna’s breakup fee payment, after tax. Humana expects to release 2017 financial guidance and a strategic plan update.

Anthem first to respond to merger challenges, government opposes quick trial

Two large insurance mergers–Cigna-Anthem and Aetna-Humana–have been hot topics since the deals were proposed. The latest hurdle, suits filed by the Department of Justice (DOJ), may be a bigger issue than anticipated, as the government argued against Anthem, Inc.’s request for a speedy trial. The DOJ argued that the issues at hand are more complex than other cases, requiring more time than the 88-day scheduling range Anthem requested.

The inevitable lawsuit 

On July 21, 2016, the DOJ filed lawsuits challenging both the Cigna-Anthem merger and the Aetna-Humana merger. Attorney General Loretta Lynch stated that the mergers would eliminate too much competition and, therefore, the motivation for insurers to lower their premiums and offer better benefits. Aetna and Humana both stated they would contest the suit, arguing that the deal would actually improve options for Medicare patients. These companies are two of the four largest Medicare Advantage providers. According to the DOJ, an Anthem-Cigna merger would result in only three insurers with networks that would sufficiently serve the country’s largest employers.

Cigna’s response to the suit was less robust, stating that if the deal closed at all, it would be sometime next year. The company is reviewing the merger agreement, which may require defense of the deal, and analyzing its options. Anthem took the position that the suit was a “step backwards” for consumers, but seemed open to a settlement.  A joint statement from Aetna and Humana suggested that some divestitures could preserve competition, but the government was doubtful.

The American Hospital Association (AHA) and the American Medical Association (AMA) believe that the suit protects consumers, and that fewer coverage options would undermine innovation. The Center for Healthcare Research & Transformation director noted that even if the deals reduced prices insurers pay to providers, consumers may not see any savings. She believes that the suits will be difficult for the companies to win. Failure would be costly for Aetna and Anthem, as the agreements state that Anthem would pay Cigna $1.85 billion and Aetna would pay Humana $1 billion in termination fees.

State responses

States are taking action on the suits as well. Eleven states, plus the District of Columbia, joined the DOJ’s challenge against the Cigna-Anthem merger, while eight states and D.C. joined to fight Aetna-Humana. Other state actions are pending as well, such as the New Hampshire Insurance Department’s is review of the Cigna-Anthem proposal. An AMA analysis found that the  merger would result in control of 64 percent of the state’s insurance market. According to the state, the two proceedings are separate, and the insurance commissioner still has the authority to act in the event that the lawsuit does not succeed. The state department is not yet prepared to hold hearings, and will wait to take action until the lawsuit is resolved.

Speedy trial

Anthem, the only company that has filed an answer in the lawsuits, requested that the judge provide a trial within 88 days, with a decision on the injunction coming within 35 days of the trial’s conclusion. The government strongly opposes such a quick timeline, as the case comes against the largest health care merger ever to be proposed. The DOJ finds that the case is more complex than another recent coal antitrust suit that was quickly resolved, which Anthem relied upon as an example in its answer.