HALEY WEISS—The Department of Justice (DOJ), joined by several states, is suing to block two mergers of four insurance companies—Aetna’s proposed $54 billion acquisition of Humana and Anthem’s proposed $37 billion acquisition of Cigna. These mergers would bring the number of major health insurance companies in the market from five to three. The DOJ is concerned with how these mergers will eviscerate competition in the health insurance market and the adverse consequences that this could have on consumers.
Antitrust laws in the United States are in place to protect consumers by preventing companies from price gouging and setting unreasonable prices for goods and services rather than responding to the prices set by competition in the market. Congress passed the first antitrust law in the United States, The Sherman Act, in 1890. The Sherman Act precludes companies from monopolizing and prevents unreasonable restraints of trade. In 1914, Congress passed the Federal Trade Commission Act, whose purpose is to ban deceptive practices, and created the Federal Trade Commission. The Clayton Act, also passed in 1914, is the final major United States antitrust law. The Clayton Act concerns mergers as well as “interlocking directorates”—when one person sits on the board of two or more companies. These three laws are still in effect today, and all work to ensure that “there are strong incentives for businesses to operate efficiently, keep prices down, and keep quality up.”
The DOJ argues that these insurance company mergers violate antitrust laws, citing two main issues that this lack of competition could bring about: higher price rates, and reduced benefits and quality of care. In its complaint against Anthem, the DOJ explains that by design, companies are forced to come up with innovative ways to get bidding contracts from employers. By substantially lessening this competitive market, that innovation will be lost and the consumers will suffer as a result.
The DOJ’s complaint against Aetna cites another major issue with the Aetna-Humana merger in particular. Aetna and Humana are two of the biggest competitors in selling Medicare Advantage plans, which are a “market-based alternative to traditional Medicare.” Medicare is a program run by the federal government that provides coverage for health care costs primarily for Americans age sixty-five or older. The merger between Aetna and Humana would eliminate the competition between them in these Medicare markets, affecting seniors, many of who are low-income Americans who often struggle to afford health care.
Aetna and Humana are refusing to go down without a fight and plan to contest the suit. Aetna threatened to drop coverage on the public insurance exchanges (Obamacare) if the DOJ blocked the merger; it has since followed through on its promise, dropping Obamacare in several markets as a result of the DOJ officially filing charges. Aetna states that the DOJ blocking the merger is forcing them to take these actions, citing “mounting financial losses” and “concerns about Obamacare’s financial viability.” In defense of their position, Aetna and Humana state that the merger will allow the larger merged company to “improve the quality of care and lower costs while increasing insurance options for many Medicare patients.”
Anthem and Cigna are similarly planning to fight the blocking of the merger in court, even though several analysts predict that they are unlikely to prevail in the suit. Anthem claims that the merger will actually encourage competition and will “allow Anthem to expand its presence on the Affordable Care Act’s insurance exchanges” at a time when many big insurers are backing out of these public exchanges. Anthem goes on further to say that the “combined Anthem-Cigna company would enter nine new states for the ACA marketplaces if the deal went through.”
The U.S. District Court for the District of Columbia has set the trial date for December 5, 2016. Thus, we will have to wait several weeks to see how things play out in the courtroom.