Seven reasons to say no to the Aetna-Humana merger

Now that the fireworks from the fourth of July are clearing in the antitrust battle on the pending health insurance mergers there is a clear message arising – the Anthem-Cigna and Aetna-Humana deals are bad for consumers and the Justice Department is poised to stop them.

Aetna is seeking a life preserver and is suggesting that they can solve the DOJ concerns by divesting about $1 billion of assets. Although that sounds generous, it’s a deal that consumers, enforcers, and the courts should not bank on.

Here are seven reasons why the DOJ and the courts should reject any attempt to fix this clearly anticompetitive merger

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First, health insurance markets are already competitively fragile at best. Study after study has found that the fewer the number of competitors in Medicare Advantage the more consumers pay. Nothing that the armies of Aetna lobbyists and lawyers have manufactured in an effort to justify this deal counters this simple fact.  

Second, competition between Aetna and Humana makes a big difference. A Center for American Progress study found that when they compete head-to-head in Medicare Advantage consumers win – Aetna premiums are $302 lower and Humana premiums are $43 lower. And Aetna is growing fast; the number of counties where they fight against Humana has increased from 82 to 562 in the past three years. That competition will be extinguished if the merger is approved.

Third, a billion in divestitures is a drop in the bucket to what conceivably might be necessary. The AHA has observed that necessary divestitures would be over 1.8 million subscribers in 368 counties. That would vastly overwhelm the $1 billion promise. Aetna shouldn’t be overly confident that simply throwing out a big divestiture number will result in their deal being approved. In the proposed Halliburton-Baker Hughes merger, the parties proposed a $7 billion divestiture – one quarter of the $28 billion purchase price – and the DOJ still found this divestiture insufficient to fix the deal’s problems.

Fourth, a divestiture is unlikely to be worth more than the paper it is printed on. Recent studies have demonstrated that merger remedies often fail. Consumers are paying higher prices in a number of industries because of failed remedies, including airlines, groceries, and rental cars.  And for health insurance it is the same story – a recent Center for American Progress study demonstrated that divestitures to protect seniors from mergers in Medicare Advantage markets in the 2012 Humana Arcadian merger had largely failed, with premiums increasing by over 44% and two of three acquirers of divested assets going out of business.

And that was a divestiture of only 12,700 lives in 51 rural counties. If you can’t divest 12,700 lives successfully how can one expect a successful divestiture that would be over 140 times larger?

It is worth noting what is being divested – just contracts with subscribers.  Once the next open season starts there is no reason why the merged firm cannot just steal them back.  Relationships with subscribers are fragile assets on which to base a remedy. 

Fifth, the group Medicare Advantage market poses unique problems that are almost impossible to cure. Businesses often provide their retirees MA benefits. These businesses demand and need a nationwide network of providers and want to offer a product on a nationwide basis. In addition, business customers want to purchase these products as a cluster of commercial products. Thus any divestiture will not only require substantial MA lives but attendant commercial businesses and sufficient scope to develop a national provider network.

Sixth, it is awfully hard to find any buyers with sufficient scope and expertise to meet the obligation under the law to fully restore competition. There are reasons the DOJ and the courts should be extremely cautious about enthusiastic buyers. Remember that Cigna, no insurance neophyte, was one of the failed buyers in the Humana Arcadian merger. Here even the largest alternative MA provider – Wellcare – would have to grow by about six times to acquire all of the necessary divested assets.  

Finally, the costs of the divestitures in disrupted service, higher premiums, uncertainty, and inferior service will be borne by consumers.  Especially for the Aetna-Humana merger, the most vulnerable consumers – elderly and disabled Medicare beneficiaries – will predictably suffer the greatest harm. There is no reason that seniors should be forced to bear the costs of a wide-ranging, risky settlement—especially when the merger will only benefit Aetna and Humana shareholders and executives. 

Seven Senators have written, “History suggests that restoring competition is especially difficult in the health insurance industry...We are not convinced that any divestitures required of the merging parties will succeed today, given that they have so clearly failed in the recent past.” The California Department of Insurance, the Missouri Department of Insurance, numerous consumer groups and the American Antitrust Institute have reached the same conclusion.

Sometimes the right way to protect consumers is to simply say no to an anticompetitive deal. And that’s what the Justice Department should do and block the Aetna merger.

Balto is an antitrust attorney based in Washington D.C. specializing in consumer protection, intellectual property, and health care. He previously served as Policy Director at the Federal Trade Commission and as an attorney in the Justice Department's antitrust division.