MOH Molina Healthcare Inc

WASHINGTON—Aetna Inc. executives on Monday jousted with Justice Department lawyers over the health insurer's reasons for sharply cutting its participation in Affordable Care Act exchanges, a potentially important issue in the antitrust trial over Aetna's proposed merger with Humana Inc.

The Justice Department, which sued in July to block the $34 billion Aetna-Humana combination, argues the deal would suppress competition for private Medicare plans, as well as the sale of individual insurance policies on ACA exchanges in 17 counties covering three states: Florida, Georgia and Missouri.

Aetna in August pulled out of exchanges in 11 states, including the areas covered by the Justice Department lawsuit. The government argues Aetna withdrew in an attempt to avoid those antitrust claims, but the insurer says its decision wasn't litigation-driven.

Aetna Chief Executive Mark T. Bertolini, in testimony that began late Friday and resumed Monday, said the company pulled back from its exchange presence for business reasons, namely accelerating financial losses that could reach $350 million for 2016.

Three other high-ranking Aetna executives took the witness stand and said that if the decision had been up to them they would have withdrawn Aetna from the exchange business entirely. That business "has continued to deteriorate as the year has progressed," said Jonathan Mayhew, who heads Aetna's exchange business.

The Justice Department introduced as evidence internal company communications in which Aetna officials specifically discussed what the insurer should do about its exchange business in the 17 counties identified in the lawsuit. And at least one email exchange appeared to show Aetna officials troubled by the move to pull out of Florida because they weren't sure it was a good business decision.

Mr. Mayhew at one point acknowledged on the witness stand that he had been told to keep strategy discussions about the 17 counties verbal so there wouldn't be written communication that could be shared with the Justice Department during discovery for the litigation.

In addition to questions about the exchanges, Aetna's Mr. Bertolini touched on a variety of topics during his second day of testimony Monday.

The Aetna CEO said Molina Healthcare Inc., which is line to buy Medicare assets from Aetna and Humana for $117 million if the merger is approved, had the capability to be successful with those assets and be a competitor in that market. Aetna has argued the Molina deal would address any antitrust concerns with the merger.

The Justice Department has argued that Molina, which is much smaller than Aetna or Humana, would be unable to replace the competition lost from the merger.

Mr. Bertolini also said he had "high expectations" that he would be able to deliver on Aetna's vision that the merger with Humana would produce more than $3 billion in cost savings and efficiencies.

Justice Department lawyer Craig Conrath in response asked a series of questions designed to show that Mr. Bertolini and Aetna didn't need the merger to move forward with cost-savings initiatives that could make the insurer more efficient.

The case is one of two currently unfolding in Washington, D.C.'s federal courthouse in which the Justice Department in challenging major health insurance mergers. The department also is suing to block Anthem Inc.'s $48 billion deal to acquire Cigna Corp.

Write to Brent Kendall at brent.kendall@wsj.com and Aruna Viswanatha at Aruna.Viswanatha@wsj.com

(END) Dow Jones Newswires

December 12, 2016 18:05 ET (23:05 GMT)

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