By Steven Alvarez
Money and Investing Writer
On Tuesday, a federal judge shot down the merge of two large health insurance companies Aetna (NYSE: AET) and Humana (NYSE: HUM). Aetna, ranked in the top three of the nation’s largest insurers, made a bid for Humana, ranked in the top five of the nation’s largest insurers, in 2015 that was agreeable for both companies. However, United States District Judge John Bates formed the opposition. He believed that a merge of this magnitude would allow Aetna to control the healthcare market and open the door for the company to manipulate prices. Bates in his ruling stated that the federal regulations could be “insufficient to prevent the merged firm from raising prices or reducing benefits”.
This ruling is actually not surprising at all because a similar merge between two major health insurers was also blocked just days ago. Blue Cross- Blue Shield carrier Anthem Inc. attempted to buy Cigna Corp. for $48 million but the agreement was similarly blocked. As of now, Blue Cross- Blue Shield is appealing the ruling.
The merge would have significantly increased Aetna’s presence in the federal Medicare Program. This would have expanded their reach to private versions of the Medicare Program that insure people over 65 years of age and/or disabled.
These merges would allow the top insurers to control the market and manipulate prices along with benefits as they see fit which could lead to a cornering of the market. The deals would have combined the top five largest health insurer into three. This top heavy market is something that United States District Judge Bates along with other federal regulators decided to combat.
On the other side, the health insurers believed that expanding their reach would allow them to buy in larger bulk from pharmaceutical companies, doctors, and hospitals and in turn cut prices. In their eyes the move would add customers and cut expenses; a win, win.
However, the feeling amongst the federal regulators led Aetna Chairman and CEO Mark Bertolini to stop pursuing the merge and not go the route of making an appeal. Bertolini said, “The current environment makes it too challenging to continue pursuing the transaction.” With the decision made on Blue Cross- Blue Shield carrier Anthem Inc. and Cigna Corp. and the resolute sentiment of federal regulators, Bertolini saw no future in pursuing the merge.
Humana will receive a $1 million breakup fee and proceed with their business as usual. Aetna chairman Bertolini added in a statement that, “we are disappointed to take this course of action after 19 months of planning, but both companies need to move forward with their respective strategies in order to continue to meet member expectations.” A different course of action will be taken by Blue Cross- Blue Shield. The Chairman Joseph Swedish said in a statement that they will, “continue to work aggressively to complete the transaction.”
A version of this article appeared in the Tuesday, February 21st, 2017 print edition.
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