When four of the country’s five largest for-profit health insurers announced two summers ago that they would pair off, many saw the moves as a game changer.
Now, with both the Aetna-Humana and Anthem-Cigna deals struck down by the federal courts, the implications for both the health insurance industry and antitrust enforcement are just as powerful.
Here’s what the experts say about what those decisions mean, and what the future could hold.
Antitrust enforcement under Obama was uniquely robust.
To Andrea Murino, partner and co-chair of Goodwin’s Antitrust & Competition Law Practice, while both mergers were blocked for different reasons, there is at least one conclusion that can be drawn from both.
The lesson, she says, is that “the flexibility and creativity that Obama administration antitrust enforcers showed in terms of defining product markets is something that the courts have been quick to embrace.”
Both judges, she noted, adopted the Justice Department’s product market definition and geographic market definition when deciding to rule against the mergers.
In addition, because neither judge was particularly willing to accept the insurers’ argument that potential efficiencies will temper any anticompetitive effects, that “will give future merging parties a good idea of whether the efficiencies defense has a future in court,” Eleanor Tyler, senior legal editor at Bloomberg Law, said in an emailed statement.
But under Trump, the future is hazy.
Now that a new administration is in power, that all could change, but given how unpredictable Trump has been it’s largely anyone’s guess which way it will go, according to Murino.
“I think if anyone’s being honest, the answer is we just don’t know,” she said. “That is in large part because President Trump has behaved in ways that have not matched previous administrations when there was a shift from Democrat to Republican or Republican to Democrat. He’s been very surprising in lots of different ways.”
It will be the most critical to see whom Trump picks to lead the DOJ and the Federal Trade Commission, as many antitrust cases are settled with regulators before ever reaching the courts, she noted.
In general, Murino predicted that under Trump, “the ferocious pace of enforcement you saw under the Obama administration appointees will slow.” However, she added, “I don’t think it means that it will disappear.”
Consolidation in the insurance industry isn’t going away.
Leerink Partners analyst Ana Gupte, though, thinks it’s possible that either Anthem or Cigna could pursue a deal with Humana, according to a recent research note. Humana has long been considered a prime acquisition target given its considerable market share in the lucrative Medicare Advantage business line.
Murino, though, doesn’t think it’s likely that any of the “big five” insurers will try to combine again anytime soon. But smaller deals, she said, aren’t as likely to face a chilling effect—including potential acquisitions pursued by the parties in the recently scuttled mergers.
“They may decide to pick off smaller competitors farther down the chain,” she said.
What might have an even bigger impact on the future of consolidation in the industry, however, is whatever legislation replaces the Affordable Care Act. When both Aetna and Anthem announced their respective deals, they both said the healthcare law necessitated such consolidation, Murino pointed out.
“Let’s wait and see what Congress and the president are able to accomplish and how they reconfigure the provision of health insurance and healthcare services,” she said. “That could end up being a more decisive factor in what happens in the industry than these two particular opinions.”
It’s unclear how Anthem and Cigna will proceed after unprecedented acrimony.
While Aetna and Humana have yet to decide about an appeal of the ruling in their case, Anthem has already said it plans to appeal. Cigna, though, has only said that it “intends to carefully review the opinion and evaluate its options in accordance with the merger agreement.”
Murino thinks Cigna is likely to join Anthem in its appeal, if only because if it does not, Anthem could argue it does not have to pay Cigna the $1.85 billion breakup fee written into their merger agreement.
“Were I in Cigna’s shoes, although this will create more agitation and disruption and time and potential delay, I imagine they intend to live up fully to their obligations in the merger agreement,” she said.
However the insurers decide to proceed, Murino noted that the public level of discord between Anthem and Cigna is not only highly unusual, but unlikely to be repeated anytime soon given how it allowed the federal judge to poke holes in the insurers’ arguments.
“Frankly, I think if you read Judge [Amy] Berman Jackson’s opinion, where she calls this the elephant in the room, if anything you’re never going to see it again,” she said. “Because the parties are going to make sure everybody holds the line and behaves.”