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Paul Zimmerman

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CA Insurance Commissioner Urges U.S. Justice Department to Block Merger of Aetna and Humana

The proposed $37 billion merger of health insurance giants Aetna and Humana has faced several regulatory and antitrust hurdles since it was announced in July 2015. Aetna’s proposed acquisition of Humana also coincides with another health insurer deal in which Anthem Inc. agreed to buy Cigna Corp. If both mergers are approved, it would reduce the number of major national health insurance companies to three: Aetna, Anthem and UnitedHealth Group Inc. Stakeholders have kept a watchful eye on California, curious as to how key insurance regulators would respond to the proposed merger. Now, California Insurance Commissioner Dave Jones has issued a finding that the Aetna and Humana merger is anti-competitive. Jones formally recommended the Department of Justice block the proposed merger of Aetna and Humana.

Earlier this week, Shelley Rouillard, director of the California Department of Managed Health Care, said she would support the Aetna-Humana merger if Aetna agreed to certain conditions, including a promise to invest $50 million in the state’s health-care infrastructure. Despite her past criticism of Aetna’s repeated rate hikes for employers, Rouillard said she reached an agreement with Aetna that should help keep future rate increases to a minimum and improve the quality of patient care. Last year, Rouillard accused Aetna of “price gouging” after it raised rates on small employers by 21 percent. However, in its agreement with the managed-care department, Aetna now says it “will commit to keeping HMO small group premium rate increases to a minimum.”

By contrast, Dave Jones, in a 24-page letter to the Department of Justice, urged that “in light of the recent trend towards consolidation in the health insurance industry, the Department of Justice not evaluate each of these transactions in a cavum but, rather, consider the overall anticompetitive impact of these consolidations in their totality.” Jones contends that the Aetna and Humana merger would reduce competition in already heavily concentrated commercial health insurance markets in California and across the nation. Jones' findings also cited the negative impact on the millions of seniors nationally who rely on Medicare Advantage. A merged Aetna-Humana would have 26 percent of all Advantage enrollees in the country, more than any other insurer.

It remains to be seen whether the Justice Department will ultimately be persuaded by findings such as those provided by Dave Jones, or if the feds will be satisfied that the enhanced market power of a merged Aetna and Humana would not necessarily lead to unreasonable rate increases. For now, it is clear that top California regulators are not of the same mind when it comes to health insurer consolidation. M&R will follow this proposed deal closely, and report on significant developments as they arise.

This blog post is not offered as, and should not be relied on as, legal advice. You should consult an attorney for advice in specific situations.