States hold key role in big insurer mergers

The U.S. Justice Department's antitrust probe of two massive proposed insurance mergers has dominated the spotlight as hospitals, doctors and lawmakers fret over the impact of allowing Anthem to absorb Cigna Corp. and Aetna to swallow Humana.

But insurance regulators in most states also have a shot at derailing or modifying the deals and will spend the first half of 2016 crunching data and holding public hearings.

The insurers won't be able to merge in states that turn down the proposals. That means rejections from even a few of the most-populous states could break the deals by diluting their financial feasibility.

“A handful of commissioners really could stop it nationwide,” said John Oxendine, a former Georgia insurance commissioner.

Peter Pavarini, immediate past president of the American Health Lawyers Association, agreed that scenario “could be a showstopper.”

Aetna has said it is confident its proposal “will receive a fair, thorough and fact-based review from the Department of Justice and the states.” So far, Michigan, Utah and Vermont have approved it.

Anthem said in a statement that it's having “collaborative and productive conversations” with state leaders.

The Justice Department's analysis will focus mainly on the mergers' effects on competition. But state laws call on insurance commissioners also to assess whether the mergers would hurt policy holders or the public, said Jay Angoff, a former Missouri insurance commissioner and New Jersey deputy insurance commissioner.

It's a broad standard that gives state insurance commissioners wider authority than the federal antitrust enforcers. They can set conditions such as freezing or limiting premium increases for set periods of time.

Also, state insurance commissioners, unlike the Justice Department, must hold public hearings. “They have a process that's transparent, and I think that transparency really helps protect consumers,” said David Balto, an antitrust attorney and former policy director of the Bureau of Competition at the Federal Trade Commission. Balto recently helped launch a group that's fighting the mergers.

Most of the states affected by the deals have not yet held their public hearings, but will likely do so in coming months, said Ana Gupte, senior analyst for healthcare services with Leerink Partners.

Florida held its hearings last week. Its approval is particularly important to the Aetna-Humana merger because of Humana's concentration in Medicare Advantage plans and the state's large number of senior citizens.

Insurance company representatives, an economist and lawyers took turns at the microphone as Florida officials peppered them with questions about how the mergers would affect technology, provider networks and companies' finances. None of the few who offered public comments at the hearings argued explicitly against the deals.

Gupte said she thinks Florida will approve both mergers but will require divestitures in the Aetna-Humana deal. Florida's blessing would be “a leading indicator” of how the Justice Department and other states might view the Aetna-Humana merger, she said. Gupte pegs the chances of the Aetna-Humana merger closing at about 75% and the Anthem-Cigna merger at 60%.

The insurers have been lobbying state commissioners hard in recent months, Oxendine said. Insurers can be especially influential in the states where they are based, Angoff said. Humana is headquartered in Kentucky, Anthem in Indiana, and both Aetna and Cigna are headquartered in Connecticut.

States' political affiliations might also affect the merger decisions. Democratic states might be more inclined to give insurers a tough time, whereas Republican states might be less willing to go against corporations, Oxendine said.

It's also possible that state insurance commissioners will approve the deals, but with conditions. In his time as insurance commissioner, Angoff said he ordered limitations on rate increases.

He cautioned, however, that a state's previous approach to a merger doesn't necessarily indicate how it will act now. “There is no precedent among insurance commissioners for deals that are this big, that affect this many states,” Angoff said.