The consolidation among the biggest health insurance players that seemed so inevitable not long ago may fizzle into a series of smaller deals aimed at growing market share in Medicare and Medicaid plans.
Aetna's $37 billion play for Humana, announced 19 months ago, appeared to be on its deathbed last week. A federal judge issued an order blocking the transaction, agreeing with the U.S. Justice Department's arguments that allowing it to happen would harm consumers in the Medicare Advantage and individual insurance markets.
While the companies may appeal the decision, industry analysts were dubious of their chances. A different judge as of last week had yet to rule on government's case against a merger of two of the other “big five” insurers, Anthem and Cigna. But that deal faced even greater odds from the start because the companies compete head to head for national accounts with big employers.
If these mega-mergers do fall apart, the companies will still be looking for partners, and they'll have money to spend. “All four of these companies are too big now to meet Wall Street expectations through organic growth,” said John Gorman, a former federal healthcare official who is now a consultant in Washington. “They have to acquire.”
But the opinion delivered last week in the Aetna-Humana case will complicate any union of companies with significant assets in Medicare Advantage, the program that allows beneficiaries to choose private managed-care plans in lieu of traditional Medicare.
And choosing partners could prove difficult under a new administration and Congress poised to disrupt every segment of the health insurance industry. Very few things in health insurance seem like a safe bet anymore.
The combination of Aetna and Humana would create the largest Medicare Advantage insurer in the nation. The companies also compete for business with individual plans sold on the Affordable Care Act's exchanges, although both companies pulled out of many of the marketplaces in the months since agreeing to merge. (In fact, the judge in the antitrust trial concluded Aetna pulled out of exchanges to follow through on its threat that it wouldn't be able to maintain its participation if the Obama administration blocked the deal.)
Aetna and Humana claimed combining the companies would lead to lower prices and better benefits for seniors. The Justice Department challenged the transaction in July 2016, arguing it would allow them raise premiums and reduce benefits and would stifle innovation. The court battle lasted 13 days and wrapped up at the end of December.
U.S. District Judge John D. Bates decided that any efficiencies achieved were unlikely to outweigh the damage. He also said the insurers neglected to prove that any savings reaped through the merger would reach health plan members. Attorneys and antitrust experts said Bates' 158-page opinion was thorough and grounded in facts, giving the insurers little chance of winning on appeal.