AET Aetna Inc. (delisted)

By Brent Kendall and Anna Wilde Mathews 

WASHINGTON -- Two health insurance megamergers are headed to the courts for high-stakes legal battles after U.S. antitrust enforcers sued to block deals involving four of the industry's largest players.

The Justice Department on Thursday filed a pair of lawsuits in a Washington, D.C., federal court challenging Anthem Inc.'s proposed acquisition of Cigna Corp. and Aetna Inc.'s planned combination with Humana Inc., alleging the mergers would harm consumers, employers and health-care providers with an unacceptable reduction in competition.

"If these mergers were to take place, the competition among these insurers that has pushed them to provide lower premiums, higher quality care and better benefits would be eliminated," Attorney General Loretta Lynch said at a news conference.

The government lawsuits counter aggressive efforts by the nation's leading health insurers to consolidate. Had the department allowed the deals, the top five national health insurers would have turned into three giant companies, each with revenue of more than $100 billion a year.

The $48 billion Anthem-Cigna acquisition would create the largest health insurer by enrollment, with more than 54 million members, and $117 billion in annual revenue. Aetna's $34 billion proposed acquisition of Humana would allow it to become the biggest seller of Medicare Advantage plans, and have overall revenue of about $115 billion combined based on 2015 totals.

Both deals were announced last summer.

Companies involved in both deals indicated they were ready to fight the government to save the deals.

In an interview Thursday, Aetna Chief Executive Mark T. Bertolini said the company is going to fight the Justice Department's suit because "we can win it." Aetna will argue that its case shouldn't be tried in tandem with Anthem's, he said, because the deals are very different. "It's not about five to three, that's a ridiculous argument," he said.

He said Aetna will argue that the government is wrong in how it views the competitive landscape for Medicare Advantage plans, which are private Medicare plans in which a combined Aetna-Humana would have a leading position. Aetna believes that traditional government Medicare should be included in the antitrust analysis.

Anthem and Cigna put out separate statements setting markedly different tones, amid lingering tension between the two companies. Anthem said it is "fully committed to challenging the DOJ's decision in court but will remain receptive to any efforts to reach a settlement."

Cigna noted that Anthem had led the regulatory process and said it is " currently evaluating its options consistent with its obligations under the agreement" with Anthem. Cigna said it believes the acquisition will close in 2017 at the soonest, "if at all" and emphasized its strength as a stand-alone company.

Both lawsuits argue the mergers create collective problems. Justice officials indicated that they would seek to have the two cases tried together in front of the same judge, a move the insurers appear poised to resist. Both lawsuits use identical language arguing that the deals would eliminate "two innovative competitors" -- Cigna and Humana -- "at a time when the industry is experimenting with new ways to lower health-care costs."

The Anthem-Cigna lawsuit focuses on the deal's alleged impact on commercial insurance, the type of coverage sold to employers and individual consumers. The department focuses particularly on the market for national employers, which the deal would leave with "only three meaningful options" to administer their health benefits, the suit says.

The suit also argues the deal would reduce competition for the business of large local employers and individual insurance, the type sold through the Affordable Care Act's exchanges. Health-care providers would also be hurt, with the deal likely leading to "lower reimbursement rates, less access to medical care, reduced quality."

Anthem has in the past argued its deal will reduce prices for consumers and boost innovative cooperation with health-care providers.

The Aetna suit focuses closely on the market for private Medicare plans, Humana's main business. The suit also argues that the Aetna-Humana deal would hurt consumers who buy individual commercial plans through the ACA's marketplaces.

Justice officials signaled it was unlikely the insurers could settle the cases by offering asset sales, or divestitures. "There are some mergers which can be solved through divestitures. We've seen nothing to suggest that these can," said Bill Baer, the acting associate attorney general.

The lawsuits come at the twilight of the tenure of the Obama administration officials, which has blocked several controversial mergers, even as it has approved others with conditions attached.

The insurance challenge gives the Justice Department at least one more major antitrust case to battle in court before the current crop of enforcers gives way to a new administration.

The cases have been assigned initially to U.S. District Judge John D. Bates, a George W. Bush appointee.

If the deals are blocked, both insurers that were set to be acquired would be due to receive substantial breakup fees.

Humana is supposed to receive $1 billion from Aetna, according to the merger agreement. Cigna would be in line to get $1.85 billion from Anthem, though the fee wouldn't be owed if Cigna makes a "willful breach of its obligations to complete the mergers."

Write to Brent Kendall at brent.kendall@wsj.com and Anna Wilde Mathews at anna.mathews@wsj.com

(END) Dow Jones Newswires

July 21, 2016 15:05 ET (19:05 GMT)

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