Missouri Denies Merger of Aetna and Humana in Excellent First Step For Consumers

Missouri is the “Show Me state” and when it comes to Aetna Humana merger the parties simply can’t show that consumers won’t lose from the Aetna Humana merger.

Yesterday, the Missouri Department of Insurance, Financial Institutions and Professional Registration released a landmark decision denying the merger of Aetna and Humana. Missouri is the first state to reach such a decision in order to protect local consumers. With many states insurance commissioners, state attorneys generals and most important – the Justice Department left to decide, this decision creates a tremendous obstacle to the approval of the merger.

You have got to give credit to the regulators at the show me state. They used the most talented lawyers and economists. They held a 13.5-hour hearing with exhaustive examination especially on the most complex economic claims. Aetna spared no effort, using the best economists money could buy. And in just over a week they issued an exhaustive thoroughly analyzed 43-page decision.

The hearing was not widely noticed, but it could not have been more timely or important — the proposed merger threatens to raise premiums of more than 300,000 older Missourians who depend on Medicare Advantage. It is for this reason that I wrote an editorial to urge the Department to block the merger.

The merging companies put on their best case, but they were faced with a daunting truth: history demonstrates that when insurers merge, premiums go up. No study — not a single one — has found that consumers benefit from health insurance mergers. And there was no compelling evidence presented that this would be the merger that would change that record.

Director John M. Huff, who authored the order, found that the evidence rebutted each and every one of Aetna’s key claims as to why the merger should be allowed to proceed. In particular, the Findings of Facts, Conclusions of Law and Order stated:

• There was substantial evidence that Medicare Advantage was a separate market than traditional Medicare. Aetna tried to argue that these two markets were the same in order to dilute their high shares. The Order listed four pages of facts that show why this argument is wrong. The Order found that these markets were separate whether you rely on case law or the Horizontal Merger Guidelines.

• There was insufficient evidence that the merger would benefit Missourians. The Order stated that the companies did not present any evidence tying proposed efficiencies to Missouri nor that any of the claimed nationwide benefits applied specifically to Missouri. The order also found insufficient evidence that the claimed efficiencies could only feasibly be achieved through merger, or that the benefits would be more than the benefits of not lessening competition.

• The Order found that it is difficult for an insurance company to enter into the insurance market, meaning that it is unlikely that there will be new sources of competition.

• The Order found that there was a significant trend towards concentration in all the markets it examined.

This denial of the proposed Aetna/Humana merger is also significant because Director Huff is also the well-respected President of the National Association of Insurance Commissioners. This decision will surely be influential to the other insurance commissioners, state attorneys generals and the Justice Department that are examining both proposed mergers.

The Order is just the first step in the process. The parties can still make a proposal to fix the anticompetitive violations found by the Department. But they face an overwhelming challenge. Every retrospective study of health insurance mergers has showed that divestitures failed to restore competition. For example, a study of the Humana/Arcadia divestiture found that two of the three buyers failed and premiums in some markets increased by over 40%. Of course these were divestitures of only 12,700 lives in 51 small counties Arkansas, Louisiana, and Texas. If these small divestitures could not work, why should the insurance commissioner, DOJ, or consumers believe that they can successfully divest over 10,000 lives in St. Louis and Kansas City? That defies common sense. And if they tried, the Department, Missouri’s Attorney General, and the DOJ would have to oversee divestitures across a number of counties, many without good options of companies to divest to.

The hard facts showed that if the merger was approved Aetna would become the dominant MA provider in the state and consumers would pay dearly in increased premiums and weakened service. That’s why the Department of Insurance just said no and blocked the merger. While this isn’t the end of the process in Missouri, it’s a fantastic first step for consumers.