Too Big to Fix: Divestitures and the Aetna-Humana Merger
The Department of Justice has traditionally conditioned its approval of large mergers based on divestitures. However, recent studies are demonstrating that divestitures are not always successful remedies, particularly concerning mergers in the health insurance arena. Last week the Capitol Forum released a new study examining the proposed mega $37 billion Aetna-Humana merger and why a negotiated settlement with the Department of Justice (DOJ) faces a number of obstacles and looks increasingly unlikely.
To start, over the last several months the DOJ has become increasingly skeptical of remedies to fix mergers. Remedies must restore competition, and this has frequently not been the case. To give just one example, the divestitures required in the 2012 Humana-Arcadian merger failed to restore competition, and consumers were left with fewer choices and higher insurance premiums. This example is especially relevant to the current case because it dealt with health insurance, and strongly implied that divestitures are not a viable remedy in this market.
DOJ also specifically voiced its concern about the Aetna-Humana merger, as well as the pending Anthem-Cigna merger. At a March 9th oversight hearing before the Senate Judiciary Subcommittee on Antitrust, then Assistant Attorney General William Baer stated, “these are transformational mergers in a number of markets, including Medicare Advantage and commercial insurance. We’ll be going from five national providers down to three. That is a game changer that demands merger law enforcement officials scrutinize very, very carefully to make sure we aren’t making a mistake in which shareholder benefit and the consumers pay the cost.”
The Aetna-Humana overlap in the Medicare Advantage (MA) is substantial and concerning. The acquisition would result in highly concentrated MA markets in 921 counties (29.3% of the nation’s 3,141 counties). 2.39 million seniors are enrolled in Aetna or Humana MA plans in those counties, and any settlement involving divestiture of the smaller of the two companies’ membership would require approximately 290,000 Aetna or Humana MA lives in 460 counties.
As previously mentioned, Humana-Arcadian divestitures in MA markets failed to restore competition, and they only involved 12,700 Medicare Advantage lives that were sent to three separate buyers. Senator Richard Blumenthal (D-CT) cited this outcome as evidence of “the futility and the failure of divestiture as a remedy.” This begs the question, if divestitures of only 12,700 lives failed, how could divestitures involving nine times the number of counties and twenty-three times the number of lives as Humana-Arcadian possibly be successful? DOJ, the courts, and CMS would have to monitor the solution and fix any problems that might arise. And once a merger is consummated correcting such market failures is an almost insurmountable task.
Finally, there is the risk of consumers being inconvenienced or having their care disrupted. In many counties there may not be a company willing and able to acquire the assets and effectively maintain competition in MA markets. Even if there is, seniors could have their access to care or benefits disrupted. If there are any errors made or the divestitures fail, the cost will be extremely high, impacting hundreds of thousands of Americans. DOJ is treading carefully in its analysis of this merger, and rather than pursue an ineffective negotiated agreement that will harm consumers, it should conclude that the Aetna-Humana merger is too big to fix.