Antitrust Regulators Scrutinize Health Insurers After Blocking Halliburton-Baker Hughes Deal
The Department of Justice is turning its attention to the health insurance mergers of Anthem and Cigna and Aetna and Humana after its legal challenge caused Halliburton Co. and Baker Hughes Inc. to end a proposed $28 billion acquisition. DOJ’s increasing willingness to take companies to court indicates that these acquisitions will be carefully scrutinized.
William Baer, who has just been promoted to the number three position at the DOJ, is taking his job to protect competition and block anticompetitive mergers quite seriously. He argued that the Halliburton-Baker Hughes merger would have eliminated competition for so many products and services that it could not be fixed. The antitrust division will now be led by Renata Hesse, who has led the opposition to previous mergers, but Baer will still oversee the efforts. The two officials rely heavily on common sense in their evaluations of deals, and they are now focusing on the health insurers.
The proposed mergers of Anthem and Cigna and Aetna Humana would greatly impact the health insurance market and leave the United States with only three major national insurers. In his testimony before the Senate Antitrust Oversight Committee in March, Baer described the insurance mergers as a “game changer that demands merger law enforcement officials scrutinize very, very carefully to make sure we aren’t making a mistake in which shareholders benefit and the consumer pay the cost.” He added that he would look at the effect of the deals on insurance premiums and the quality of care, and that if there was a reduction in quality resulting from the mergers, even if prices did not increase, that would be a legitimate concern for the DOJ.
Anthem’s takeover of Cigna alone threatens competition in commercial insurance in hundreds of markets. Traditionally DOJ has relied on divestitures to restore competition when needed, but their track record in health insurance, as we previously detailed, is disappointing. In many areas there are no health insurance companies that can rise to the challenge, take possession of the divested assets, and maintain a competitive marketplace.
During his tenure in office, Baer has also required more substantial asset sales before allowing deals to proceed, and emphasized that divestitures have to be substantial and restore competition from the very beginning. Divestitures in the case of these health insurance mergers would indeed be substantial—millions of lives in hundreds of markets—but they would almost certainly not restore competition.
We welcome the close scrutiny of these mergers, and hope that antitrust regulators will remember that in many health insurance markets, there is already too little competition, and that these mergers will make that situation worse.