TALLAHASSEE – A merger between two insurance companies is being blocked by a lawsuit filed by Florida's attorney general's office.
Attorney General Pam Bondi filed the lawsuit against Aetna Inc. and Humana Inc. to stop the proposed merger between the two companies. The lawsuit, which was filed in the U.S. District Court for the District of Columbia, is one of several suits filed by states including Delaware, Georgia, Illinois, Iowa, Ohio, Pennsylvania and Virginia, as well as the District of Columbia.
In Bondi’s lawsuit, she is specifically focusing on the Medicare Advantage market, saying the merger will increase premiums particularly in the counties of Broward, Charlotte, Duval, Manatee, Martin, Polk, Sarasota, St. Johns and St. Lucie. The complaint also states that the merger will lead to reduced benefits, less innovation and poor service.
“Most economists would say that the consequences of a merger depend in large part on how much the merger increases market concentration,” Bruce Vogel, associate professor at the University of Florida Health Sciene Center told the Florida Record. “The Federal Trade Commission publishes merger guidelines showing when mergers are likely to be scrutinized as anti-competitive. The measure they use is the Herfindal-Hirschman Index (HHI) and their website provides guidelines about HHI thresholds where they will review whether mergers may create too much market concentration. This broadly comes under the rubric of antitrust enforcement by both the FTC and the Department of Justice.”
Aetna and Humana released a joint statement saying they will vigorously defend the lawsuits that seek to block the transaction. They said a merger will offer more options to consumers by expanding their offering to more areas, the insurance options will cost less and they will be of greater quality.
“The companies merging often argue that mergers will lead to much greater efficiencies and thereby reduce their costs,” said Vogel. “They further argue such cost reductions will lead to lower prices that will outweigh any anti-competitive effects the merger might have through increasing market concentration. Not surprisingly, antitrust officials are highly skeptical of such arguments, especially when mergers tend to greatly increase market concentration.”
All of the state lawsuits are specifically aimed at the effect the merger will have on the Medicare Advantage market, citing a narrow market of insurance coverage that will create a monopoly by the two companies consolidating into one.
“Antitrust cases often revolve around how broadly the market is defined in terms of geography and services since the broader the market, the less a merger will increase concentration,” said Vogel. “Firms seeking to merge will often argue that they compete in a very broad market and that the merger will have a negligible effect in increasing concentration. Here again, antitrust officials are often more skeptical and argue for narrower market definitions.”
Whether Bondi’s case will move forward and succeed in stopping the merger lies in the ability to prove that the market will be affected and how much competitiveness for insurance, especially Medicare Advantage, will be available if the two companies become one.
“The greater the increase in the HHI and the higher the new HHI, the greater the chance generally that the judge will rule against the merger,” Vogel said.