Aetna, Humana mega-merger hits snag in Missouri

Companies say the order does not impede the broader DOJ approval process.

Missouri regulators have moved to bar the merger between insurers Aetna and Humana, marking the first potential state-level hurdle as the two insurance giants move through the regulatory process.

Background on the deal

In July 2015, Aetna announced it had reached a $37 billion deal to purchase Humana, which would make Aetna the nation's second-biggest insurer by revenue.  The combined company would cover more than 33 million people, and according to the Kaiser Family Foundation, it would provide coverage to more than one-quarter of Medicare Advantage enrollees. Aetna currently has about 7 percent of the Medicare Advantage market share, compared with 19 percent for Humana.

In October, shareholders at both companies voted overwhelmingly to approve the merger. However, regulators at both the federal and state level must also weigh in. So far, 15 of 20 required states have approved the merger.

Missouri's concerns

On Wednesday, Missouri's director of the Department of Insurance, John Huff, released a preliminary order barring the merger over antitrust concerns. Missouri is the first state to issue such an order. However, the order could be rescinded if Aetna and Humana reorganize the transaction or sell certain assets to maintain a competitive market in the state.

Huff wrote that barring changes to the deal, Humana and Aetna must "cease and desist" from selling small group and employer-based Medicare Advantage plans in the state. He added that the companies have 30 days to "submit a plan to remedy the anti-competitive impact of the acquisition."

Combined, the two companies control 54 percent of the individual Medicare Advantage market in the state, as well as 30 percent of the group market. In nearly two dozen counties, the companies control 80 percent of the individual market.

Aetna and Humana have argued that traditional Medicare provides enough competition with the Medicare Advantage market to allay any antitrust concerns. Huff, however, rejected that argument, saying Aetna and Humana "failed to demonstrate that traditional Medicare operates as a competitive constraint."

Impact on the broader deal

Elevation analyst Ira Gorsky says the Missouri order could also be seen as "conditional approval," according to CNBC. "I think this is normal in the course of the process," he explains, adding, "Anyone [who] has been following this closely should have expected divestitures."

However, some say the Missouri order could be a sign of future challenges for the merger. Matthew Cantor, an antitrust attorney with Constantine Cannon, says, "This order signals [DOJ] will closely scrutinize how the merger of Aetna and Humana will impact Medicare Advantage markets throughout the country."

Hospitals are worried about insurers' merger talks. Here's why.

The American Medical Association (AMA), which has expressed concerns about the merger, applauded the Missouri decision. In a statement, AMA President Steven Stack said, "The Missouri order strongly validates concerns that AMA has expressed to Missouri regulators, as well as [DOJ], and officials in other states impacted by the proposed health insurer mergers."

However, Aetna's spokesperson, T.J. Crawford, notes that the order does not impede the DOJ approval process. "We are disappointed with the Missouri order but expect to have a constructive dialogue with the state to address their concerns," he says. And in an earnings call last month, Aetna CEO Mark Bertolini said, "[W]e believe we remain on track to close in the second half of 2016" (Coombs, CNBC, 5/25; Herman, Modern Healthcare, 5/25; Humer, Reuters, 5/25).

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