Antitrust Regulators Concerned About an Anthem-Cigna Merger
Posted on June 22, 2016
Officials said to be skeptical that health insurers can offer enough concessions to preserve competition
By Liz Hoffman,
Brent Kendall and
Anna Wilde Mathews
June 19, 2016 6:59 p.m. ET
U.S. antitrust regulators have privately expressed concerns about Anthem Inc.’s $48 billion proposed acquisition of Cigna Corp., and are skeptical that the health insurers can offer concessions that would fully preserve competition in the industry, according to people familiar with the matter.
Company representatives met June 10 in Washington with Justice Department staffers and representatives of more than a dozen state attorneys general, the people said. At the meeting, government officials outlined their worries about combining two of the nation’s top health insurers, the people said.
Merging companies sometimes can win government approval by offering to sell assets or agreeing to other restrictions on their operations, but government staffers told the companies they weren’t optimistic Anthem and Cigna could offer satisfactory fixes, the people said.
The companies have other meetings scheduled for this coming week with top Justice Department officials, the people said. Such meetings give companies a chance to make their case to decision makers about why a deal wouldn’t hurt competition. Some of the people said the department hasn’t yet made a decision on whether to sue to block the deal.
“We have been in ongoing dialogue with the Justice Department and state regulators regarding the compelling combination of our two companies to increase consumer access to high-quality, affordable health care,” an Anthem spokeswoman said. “Given that the process is ongoing, it would be inappropriate to comment on our actual discussions.” A Justice Department spokesman declined to comment, as did a Cigna spokesman.
As of early May, Anthem and Cigna were expecting a decision on approval from the department by July 2, according to internal correspondence reviewed by The Wall Street Journal. The companies now expect to hear by mid-July, a person familiar with the matter said.
Anthem has said that it has minimal overlap with Cigna in terms of geography or products, and that the deal would bring down costs and improve offerings for customers.
If completed, it would create the largest U.S. health insurer by number of members with more than 54 million, with $117 billion in annual revenue. The deal was struck last summer during a wave of tie-ups, including Aetna Inc.’s pending $34 billion purchase of Humana Inc., that would reduce the five biggest health insurers to three.
Of the two, Anthem-Cigna is thought by investors to have the tougher road to approval. The two companies compete in the market for administering health benefits for national companies, unlike Humana, which is mostly known for its strong Medicare franchise.
In the meeting earlier this month, Justice Department officials outlined key areas where they say a combination of Anthem and Cigna could hurt competition, the people said. A major concern is the national employer market. The Justice officials said they believed the deal would shrink the number of competitors to three from four. In addition to Anthem and Cigna, that list includes Aetna and UnitedHealth Group Inc.
Anthem said at an investor conference in May that the national-account business is more competitive than a simple calculation would imply because big employers often divvy up their business regionally among different insurers.
Another area of concern, the people said, is the market for individual insurance plans, the coverage sold on the exchanges that are at the heart of the Obama administration’s signature health law. Anthem is a major player in individual markets in 14 states. Cigna has a smaller presence but is participating in seven Affordable Care Act exchanges this year and said it plans to expand into new states in 2017.
Anthem Chief Executive Joseph R. Swedish said in congressional testimony last year that “there is now and will continue to be robust competition” in the individual insurance markets.
Justice officials also expressed concerns about the heft that a merged Anthem-Cigna would carry with health-care providers, the people said. Hospital and doctor groups have strongly opposed the deal, arguing that bulked-up insurers would have too much power to force lower reimbursement rates.
Anthem has said the deal will help it work more closely with health-care providers.
The companies’ 11-month engagement has been rocky, with their respective officials privately sparring on a number of fronts, including the strategy for securing antitrust clearance, the Journal reported last month. The discord could lengthen the odds of receiving regulatory approvals, which are typically tougher to get if both parties aren’t in sync.
Investors are less optimistic on the prospects for Anthem’s deal than for Aetna’s. Shares of Cigna have hovered about 35% below the value of Anthem’s cash-and-stock offer, versus a roughly 20% gap between Humana shares and the terms of its sale to Aetna.
Both mergers are in front of an antitrust enforcement regime that has shown a willingness to block rivals from combining in industries it views as being already concentrated. In a recent speech, Bill Baer, the acting associate attorney general, said such mergers “can give companies far too much power over the markets in which they operate, threatening the principles of freedom and fairness that undergird our economy.”
Mr. Baer is among the officials scheduled to meet this week with Anthem and Cigna, according to people familiar with the matter and the correspondence reviewed by the Journal.
The government recently won a court ruling that blocked the proposed combination of office superstores Staples Inc. and Office Depot Inc., while Halliburton Co. abandoned its takeover of oil-field-services rival Baker Hughes Inc. under pressure from antitrust officials.