Antitrust Law Daily Wrap Up, ACQUISITIONS & MERGERS NEWS: AHA urges close review of Anthem-Cigna, Humana-Aetna deals, (Aug 6, 2015)
Organizations Mentioned:Aetna, Inc. | American Hospital Assn. | American Hospital Association | Anthem | Anthem, Inc. | Cigna | Cigna Corp. | Humana | Humana Insurance Co.
By Greg Hammond, J.D.
The American Hospital Association (AHA) is urging the Department of Justice Antitrust Division to closely scrutinize the proposed merger between Anthem and Cigna, as well as Humana and Aetna—four out of the five major health insurance companies in the United States. AHA Senior Vice President & General Counsel Melinda Reid Hatton sent a letter yesterday to Assistant Attorney General William Baer, expressing the group’s concerns. Given the enormous size and scope of the transactions, Hatton suggests that a thorough investigation is needed to determine whether remedies, such as divestitures, “have any chance of ameliorating the enduring damage they could do as a result of the loss of such significant competition.”
Hatton focused on Anthem’s proposed $54 billion acquisition of Cigna Corp, noting a material risk that the transaction is likely to substantially reduce competition. “The potential harm to consumers from this loss of competition is large and durable,” Hatton wrote. “Because the two companies generate more than $100 billion in combined revenues, even a modest price increase would cost consumers billions of dollars in higher health care costs.”
Specifically, Hatton noted that the transaction threatens to reduce competition in the sale of commercial health insurance in at least 817 relevant geographic markets, which collectively serve 45 million consumers. The risk of harm is further enhanced because new entry is unlikely to prevent, or even partially offset potentially anticompetitive effects. Although the insurance companies are likely to argue that the transaction would produce offsetting efficiencies, Hatton claims that this is unlikely. “As numerous economists have found, demand for health insurance is inelastic, which reduces the incentive for large health insurance companies to pass through cost savings,” she stated. “The incentives to pass savings on to consumers are further reduced due to the opaqueness of the insurance markets and the fact that costs and benefits are not fully internalized by consumers.”
Companies: American Hospital Assn.; Anthem, Inc.; Cigna Corp.; Humana Insurance Co.; Aetna, Inc.
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