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.

The lawsuits counter aggressive efforts by the health insurers to consolidate. The deals would have turned the top five national health insurers 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. 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.

Companies involved in both deals indicated they were ready to fight to save their transactions.

Aetna Chief Executive Mark T. Bertolini in an interview said the company is going to fight the Justice Department's suit because "we can win it."

Mr. Bertolini and Humana CEO Bruce D. Broussard, interviewed separately, said they 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. The companies believe that traditional government Medicare should be included in the antitrust analysis, and that they have proposed adequate remedies to any competitive concerns.

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."

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. The lawsuits use identical language arguing 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," the suit said.

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 on the market for private Medicare plans, Humana's main business. The suit also argues 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, which has blocked several controversial mergers, even as it has approved others with conditions attached.

The cases have been assigned initially to U.S. District Judge John D. Bates, a George W. Bush appointee who in 2004 rejected a Federal Trade Commission bid to block a $364 million mining acquisition by Arch Coal Inc.

If the deals are blocked, the insurers 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 deal.

The companies could struggle with months of business uncertainty as the cases proceed. And the companies would all face business challenges if they had to move forward alone in the shadow of the much larger industry leader, UnitedHealth Group Inc. Analysts have said at least some of them might try to buy a smaller insurer focused on Medicaid or acquire Medicare business as a way to bulk up.

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

(END) Dow Jones Newswires

July 22, 2016 02:48 ET (06:48 GMT)

Aetna (NYSE:AET)
Historical Stock Chart
From Mar 2024 to Apr 2024

Aetna (NYSE:AET)
Historical Stock Chart
From Apr 2023 to Apr 2024