More on Mergers & Acquisitions

Humana stock plummets as merger with Aetna given marginal odds of going through

Big insurers are unlikely to back out of mergers despite fierce opposition, legal expert says.

Susan Morse, Managing Editor

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Humana's stock fell by 9 percent last week before rebounding, as the Aetna/Humana merger is facing scrutiny over the consolidation of two of the giants of the Medicare Advantage market.

On Tuesday, Humana opened at $155.52 and closed at $154.71, according to

At issue are the eight to ten states where there is significant overlap in the Medicare Advantage product, according to Attorney Rob Fuller of Nelson Hardiman, in Los Angeles. These include Florida, Louisiana, Texas, Missouri, Ohio, Virginia, Kentucky, Tennessee and North Carolina, he said.

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There are differing analytical views as to whether the Justice Department is looking at Medicare Advantage as a competitive market distinct from traditional Medicare.

If the Justice Department sets up roadblocks, Fuller said he believes the payers would fight their cases in court.

[Also: California regulator signs off on $37 billion Aetna-Humana merger]

Insurers involved in the mega-merger deals have too much to lose by dropping their bids for acquisition, despite push-back from federal regulators, some state regulators and seven U.S. Senators, according to Fuller, an attorney who represents providers and has experience in antitrust law.

"They have too much at stake," said Fuller. "Internally, it's billions in synergies."

Fuller believes the Department of Justice will make a decision on the proposed mergers between Aetna/Humana and Anthem/Cigna next month.

He believes the Department of Justice will approve the mergers, with conditions, though a recent JP Morgan report gives the $34 billion Aetna and Humana merger below a 50/50 chance of happening, according to benzinga.

[Also: Missouri rejects Aetna, Humana merger, would block business if takeover continues]

In recent weeks, analysts reported that the Anthem bid to acquire Cigna for $54 billion was so far gone as to spark talk of termination fees to get out of the deal.

Anthem tried to quell rumors Monday by releasing this statement: "Anthem and Cigna are not in discussions regarding a termination of the merger agreement or the payment of a break-up fee," Anthem spokeswoman Jill Becher said by email.  "The completion of the Cigna acquisition is the highest priority for Anthem in 2016. Anthem continues to be in ongoing dialogue with the Department of Justice and state regulators regarding the compelling combination of our two companies to increase consumer access to high quality, affordable healthcare."

Consolidation is essential for the insurers, Fuller said. It means cutting back to having one set of underwriters, one set of salespeople, essentially cutting overhead in half at a time when health insurance companies must reinvent themselves.

As risk is being transferred to the provider, insurers are becoming third party administrators, Fuller said.

"As such the services they provide are no longer insurance," Fuller said. "It's administrative only; it leaves them with less power and relevance in the marketplace."

[Also: California Insurance Commissioner urges feds to block $54 billion Anthem-Cigna deal]

As an example of the changing market, Fuller cites the formation of Optum by the nation's largest insurer UnitedHealth. Optum has become one the biggest medical groups in the country as it acquires physician practices.

The mergers would take five of the nation's largest insurers down to three, including UnitedHealth.

As to whether savings would be passed on to policyholders, Fuller expressed skepticism and said the Department of Justice has no jurisdiction over rates.

But for providers, he predicts, insurers would use "blunt force trauma" in setting rates, Fuller said.

Last Friday, insurers reportedly met with federal officials to allay antitrust concerns through proposed divestitures.

In late June, seven U.S. Senators sent a letter to Renata Hesse, principal deputy assistant attorney general of the Antitrust Division, speaking against both mergers over concerns of competition and higher prices for consumers.

"The three largest insurers hold 80 percent or more of the market share in almost two-thirds of states," the letter states.

No level of divestiture can replace the lost competition, they said.

Twitter: @SusanJMorse

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