Medicare question could make or break Aetna's fight for merger

As Aetna and Humana prepare to fight the Justice Department’s lawsuit against their merger, a key point of contention is how to define competition in the Medicare Advantage market.

The DOJ filed lawsuits last week asking the federal courts to block both the Aetna-Humana deal and the Anthem-Cigna merger, arguing the deals benefit shareholders at consumers’ expense. At the press conference announcing the decision, Deputy Assistant Attorney General Sonia Pfaffenrot confirmed that federal regulators see Medicare Advantage as distinct from traditional Medicare.

“There are more and more seniors who are turning to Medicare Advantage as a lower-cost and higher-quality health insurance solution,” she said. Lower co-pays, lower deductibles and additional benefits such as dental and vision make MA a better choice for some seniors, she added, “and we do view those as two separate markets.”

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In its complaint against Aetna, the DOJ says loss of competition is likely to be “particularly acute” in 364 counties, or 11.8 percent of all U.S. counties. And seniors in other areas, it argues, “likely would lose the benefits of significant head-to-head competition” between Aetna and Humana.

Aetna, however, contends that the DOJ’s complaint defines the Medicare Advantage market too narrowly, causing regulators to see competition issues with the merger that don't exist, Reuters reports.

"Let a judge decide. Is Medicare Advantage competitive with Medicare fee-for-service? If that is indeed the case, then there isn't any market we need to divest," Aetna CEO Mark Bertolini said in an interview with the news outlet.

Even so, Aetna has offered up proposed divestitures to satisfy concerns about competition in MA markets where its business overlaps with Humana’s. But the DOJ firmly rejected those remedies, with Principal Deputy Associate Attorney General William Baer calling them “inadequate and incomplete” because divested plans rarely are able to maintain the competitive status quo.

Should the Anthem-Cigna deal break up first, antitrust lawyer Matthew Cantor tells Reuters that it’s possible that the DOJ could agree to a divestiture package that includes Anthem as a buyer of some of Aetna’s MA assets.

Indeed, Aetna is not the only insurer to pursue aggressive expansion into the private Medicare business. A recent report notes that several major carriers have increased market penetration in the past few years, and “growth opportunities abound in the Medicare Advantage market.”

- here’s the complaint against Aetna
- listen to Pfaffenrot’s comments
- read the Reuters article

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