Aetna, Humana Won’t Appeal Decision Blocking Merger

Aetna decided not to appeal a judge’s ruling that its planned acquirement of Humana violates antitrust law. Experts said it would have been an uphill battle to preserve the $34 billion deal. The two insurers announced in separate statements this morning that they are ending their merger agreement, the Wall Street Journal reports.

U.S. District Judge John D. Bates ruled last month that the merger would thwart competition and ultimately put at a disadvantage seniors buying Medicare Advantage coverage.

What now? “The end of their deal, which would have forged a diversified insurance powerhouse, leaves both insurers with challenges as they forge separate paths forward,” the newspaper reports.

Humana’s statement about the mutual termination mentions that it will receive a breakup fee of about $1 billion, or nearly $630 million after taxes. Mark Bertolini, Aetna’s CEO, said in his statement that it was time to move on, even though both companies were “disappointed to take this course of action after 19 months of planning….”

Here are some highlights from the Aetna-Humana case:

  • The Justice Department accused Aetna officials of pulling out of ACA exchanges in three states because Aetna officials believed that their presence in those exchanges would become an issue in the government’s antitrust lawsuit against the two companies.
  • Bertolini was quite a presence all along, even before he took the stand. He received two letters from Senate Democrats asking him to detail why the health insurer has exited Obamacare exchanges.
  • Humana is one of the largest Medicare Advantage (MA) providers and Justice Department lawyers argued that the merger would be bad for MA beneficiaries. Aetna also offers MA plans. Justice Department lawyer Craig Conrath pointed out that the competition between the two helps improve quality and control costs. That would be lost in 350 counties where the insurers now compete head-to-head. Humana owns 18% of the MA market. Only UnitedHealthcare has a bigger presence, at 21%. Aetna has 7% of the market.
  • John Molina, the CFO of Molina Healthcare, faced intense questioning from Justice Department lawyers concerning the merger. Aetna and Human said they would sell $117 million of its assets to Molina. Those assets would bring about 290,000 Medicare beneficiaries in 21 states into the Molina fold. The move would also broaden Molina’s market reach, as the company is now primarily a managed Medicaid supplier. In order to quell the Justice Department’s concerns about the deal decreasing competition, the merging parties agreed to sell off parts of the new company where there is overlap to a third company—Molina, in this case.

Source: Wall Street Journal