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Federal Judge Blocks Humana-Aetna Merger

Stephen George

Humana and Aetna won’t be allowed to merge, according to a ruling from a federal judge out on Monday. Antitrust and competition issues were cited.

The companies will likely appeal the ruling, handed down from Washington, D.C. District Court Judge John Bates. An appeal could take another six months to a year.

Tom Noland, spokesperson for Humana, said the company was prepared for this outcome and is still reviewing the 153-page decision. He also noted that whatever the final outcome, Humana will continue as a company.

“The fact that we have millions of members, most of whom renew every year, shows that we do great work,” Noland said.

Humana employs more than 12,000 people in Louisville. While neither company has been firm on how many employees would remain in the city under a merger, Aetna has said it would make Louisville the headquarters for its government business, including Medicare, Medicaid and Tri-Care.

The judge sided with Justice Department regulators who were concerned that consumers would have fewer choices in Medicare Advantage and other plans if the companies merged.

Aetna, the country’s second-largest insurer, and Louisville-based Humana both offer Medicare Advantage plans in 364 counties across 21 states. If the merger went through, seniors would have one less insurer to choose from.

And the merged company could raise premiums.

Burke Christensen, a professor of insurance at Eastern Kentucky University, said having a bigger pool people means that insurers could reduce prices. That’s because insurers are required to have “loss reserves,” where they keep money in case there are bigger medical claims than expected.

Whether the consumer would see that price reduction, however, would be up to the insurer.

“On the other hand, the fewer insurers there are, the less competition there is for the insured,” Christensen said. “Thus, insurers are freer to increase prices to generate profits.”

Humana has 3.2 million Medicare Advantage members, which made the merger attractive to Aetna at the outset. That was also one big reason for the denial of the merger, according to the judge’s order — even though Humana and Aetna have agreed to sell off some of their Medicare Advantage business to Molina Health.

The court wrote: “Neither entry by new competitors nor the proposed divestiture to Molina would suffice to replace competition eliminated by the merger.”

Another issue was with competition in the individual exchange market. Aetna withdrew from 17 counties to appease the court, but it didn’t work. That’s according to David Dirr, a health care attorney with law firm Dressman Benzinger LaVelle in Crestwood.

“The court dismissed that and said that may have been a ploy to prevent review on that basis,” he said. “So they didn’t put a lot of weight into that decision to withdraw. Aetna might decide to compete in those counties in the future.”

Adding to the pressure is a potential merger between Cigna and Anthem. Reducing the insurance market to three major insurers is fueling DOJ concerns — and stockholders’ response.

Humana stock prices dipped as the news was announced Monday, but by the end of the day they had increased slightly. Meanwhile, Aetna’s stock hit a three-month low.

In addition to the Medicare market, the merger would also affect private employer insurance. In 2014, 46 percent of Kentuckians had employer-based insurance, while 23 percent were covered by Medicaid, 17 percent by Medicare, and 6 percent had individual plans via the health insurance exchange and private market, according to the Kaiser Family Foundation.

This story has been updated.

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