by Tyler Durden
Zero Hedge / 2017-02-08 19:30
Moments ago a federal judge blocked health insurer Anthem from acquiring rival Cigna, the second court ruling in recent weeks to deal a decisive blow to health insurers seeking consolidation as a cure to the substantially higher operating costs plaguing the industry as a result of Obamacare. The ruling echoed a decision by a different judge last month who blocked Aetna’s plans to take over Humana. Though the two proposed insurer combinations were different in many ways, both judges found that merging top industry rivals threatened higher prices without the necessary patient benefits to offset those higher costs. Per the Wall Street Journal:
The decision, by U.S. District Judge Amy Berman Jackson, said the proposed $48 billion deal violated federal antitrust law because it would create an unacceptable reduction in the number of companies that can serve large national employers that insure their workers.
Of course, as the Journal notes, while the decision could be challenged by Aetna, rising tensions between the two companies make an appeal unlikely.
While Aetna is considering a possible appeal in its case, Wednesday’s ruling almost certainly kills the Anthem-Cigna transaction, as discord between the companies has grown considerably since they announced their deal in July 2015.
At the deal’s inception, the insurers said their marriage would create a diversified, innovative and more efficient health insurer. But the two sides’ relationship soured over time as they clashed over leadership styles and visions for the future.
The companies squabbled during the Justice Department’s review of the transaction and eventually accused each other of violating the merger agreement.
As we noted last summer, several massive health insurers were forced to pull out of Obamacare exchanges all around the country after losing $100’s of millions of dollars serving unprofitable markets in 2016. Aetna even warned that failure to close proposed mega-mergers in the industry would only result in further withdrawals and less customer options.
In a July 5 letter to the Justice Department, reviewed by The Wall Street Journal, Aetna said that if the Humana deal drew a legal challenge, “instead of expanding to 20 states next year, we would reduce our presence to no more than 10 states.” In addition, the letter, signed by Aetna Chief Executive Mark T. Bertolini, said the insurer believed “it is very likely that we would need to leave the public exchange business entirely and plan for additional business efficiencies should our deal ultimately be blocked.”
Sure enough, one month later, Aetna executed on its warning with a dramatic reduction of its Obamacare offerings. It may only escalate from there.
The company said in the letter that an antitrust suit or a successful prevention of its deal would create financial strains that would force it to pull back from the exchanges, where it was losing money. “Although we remain supportive of the Administration’s efforts to expand coverage, we must also face market realities. Our customers expect us to keep their insurance products affordable and continually improving, and our shareholders expect that we will generate a market return on invested capital for them,” the letter said.
While it is undisputed that contrary to expectations, Obamacare has ended up being a far greater drain on profits than insurance providers had expected – on August 2, Aetna disclosed that its ACA plans had lost approximately $200 million in the second quarter of 2016 and were expected to lose more than $300 million this year – this type of “bargaining” with the government is disturbing, as it suggests a quid-pro-quo arrangement with the government is not only possible but expected when making corporate decisions.
The two maps below prove the point above beautifully by illustrating the epic collapse of Obamacare coverage in just 1 year. A collapse that has left a stunning number of people across the country with only 1 option for health insurance. Meanwhile, healthcare shoppers in Pinal County, Arizona will actually be left with no options in 2017 as all carriers have abandoned service there. (charts per the New York Times)
2016 healthcare insurance carriers by county:
2017 healthcare insurance carriers by county:
Of course, if Republicans have their way then the entire original premise of this merger may be rendered moot in a few months anyway.