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The Best Bad Advice Money Can Buy

The health insurance companies Anthem, Cigna, Aetna, and Humana have collectively spent over $400 million on huge numbers of lawyers, investment bankers, and other advisors in order to get two health insurance mergers approved.

It’s no wonder these companies are investing so much; the merger of Aetna and Humana will cost $37 billion and the merger of Anthem and Cigna will cost $53 billion. And should the federal or state governments block the mergers, the companies would have to pay very large breakup fees. Aetna would owe Humana $1 billion, and Anthem would owe Cigna $1.85 billion. These companies have a lot at stake.

While the corporate law firms that these companies have hired are clearly doing very well for themselves, the companies might find the money was better invested improving their own operations. The mergers have encountered substantial opposition, and transaction costs will continue to rise.

Despite their expertise, the advisors and lawyers are apparently not giving these companies good advice on the regulatory risk resulting from the competitive harm that will result from these deals. Overwhelming evidence demonstrates that past health insurance mergers have resulted in higher health insurance premiums for consumers, greatly reduced competition, and less access to quality health care. There is no reason to believe these mergers will be different, especially considering that the transactions will reduce the five largest health insurers in the U.S. down to three and involve substantial overlap affecting millions of consumers nationwide.

Consumer advocates, healthcare providers, legislators, and former antitrust officials have mobilized in opposition to these proposals. But the merging companies have yet to rise to their challenges. When asked how Anthem’s acquisition of Cigna and Aetna’s acquisition of Humana will concretely benefit consumers, the company representatives have given halting, vague answers or been reduced to silence. The simple answer may be that the mergers won’t benefit consumers.

Antitrust regulators are aware of this information and are carefully scrutinizing the companies, conducting a meticulous investigation. Previously Anthem, Cigna, Aetna, and Humana had expressed confidence that the Department of Justice would complete its review in late 2016. But as we previously noted, Cigna recently admitted that it had underestimated the antitrust review, and that the deal might not close until 2017. Clearly Cigna’s lawyers underestimated the problems with the deal.

Anthem’s financial records show that after taxes, it has spent $139 million on legal fees, financial consulting and other expenses in an effort to get its acquisition of Cigna approved by regulators. Likewise, Aetna has spent at least $119 million after taxes on its Humana transaction. After taxes, Cigna and Humana paid their lawyers and bankers $93 million and $52 million respectively for the mergers.

These expensive legal and banking services are a clear indication of how much money is at stake in these mergers. Yet these advisors, for all their hefty fees, have been unable to convincingly argue that the two acquisitions will help anyone except the merging companies. If they cannot effectively advocate for these consolidations, the arguments in favor of them must be weak indeed.

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