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California Insurance Commission to weigh in on Anthem's $54 billion acquisition of Cigna

Commission approved $6.3 billion Centene/Health Net merger in March, paving way for deal to close

Susan Morse, Managing Editor

California Insurance Commissioner Dave Jones is expected to render a decision soon on the $54 billion proposed merger between Anthem and Cigna, after holding a public meeting last month.

Jones had not made a decision as of Wednesday, according to his press office.

The commissioner's decision is non-binding and he will provide a copy of his opinion to federal regulators for their consideration.

In March, Jones and the California Insurance Commission approved Centene's $6.3 billion acquisition of Health Net, the last hurdle in the now finalized deal that has given Centene the title of the largest Medicaid Managed Care Organization in the country, according to CEO and President Michael F. Neidorff in a statement on the merger.

The combined entities position Centene for long-term growth, including expanding government program offerings in Medicare Advantage and with the U.S. Departments of Defense and Veterans Affairs, Neidorff said.

[Also: Mega insurance deals could affect credit ratings of Anthem, Cigna, Aetna, S&P says]

For California to approve the Anthem/Cigna proposal, the burden is on the nation's second and fifth largest health plans respectively, to show the merger is in the best interest of the consumers and the healthcare marketplace, Jones said during the March 29 public hearing.

"This merger would create the nation's largest health insurer, which could have a significant impact on California's consumers, businesses, and health care marketplace," Jones said in statement.

A successful merger would overtake UnitedHealth Group in the number one spot, as far as the largest number of covered members, according to California Healthline.

Jay Wagner, Anthem's vice president and counsel, and Tom Richards, Cigna's global leader for strategy and business development, said the purchase would cut costs by $2 billion annually, according to California Healthline.

It would lead to more affordable health insurance policies, they said during the hearing. However they could offer no guarantees because of factors out of their control such as the rising price of prescription drugs, they said.

[Also: UPDATED: Anthem to buy Cigna for $54 billion]

In written testimony, members of the Nicholas C. Petris Center on Health Care Markets and Consumer Welfare, who were asked to provide testimony, said studies have found no correlation between insurer consolidation and lower costs for consumers.

Higher concentration is associated with lower hospital prices, but not necessarily premiums, according to testimony by Brent D. Fulton of the Petris Center.

"Even if insurers are able to negotiate lower provider reimbursement rates, particularly when they possess market power, there is substantial evidence that those cost savings might not be passed on to employers and consumers in the form of lower health insurance premiums," he said.

In fact a study has found that more concentrated health insurer markets has led to higher premiums for more profitable firms, providing evidence of insurers exercising their market power, he said.

The Anthem/Cigna merger also needs the green light from 23 other states, California Healthline said.

Whatever recommendation Jones makes will go to the Federal Trade Commission and Department of Justice, which will ultimately decide whether to approve the Anthem/Cigna merger as well as the proposed $38.5 billion merger between Aetna and Humana.

[Also: 15 states join probe of Cigna, Aetna health insurance mergers]

In the commission's conditional approval last month of Centene acquiring control of Health Net and Health Net Life Insurance Company, Jones said the transaction provides an opportunity for Centene to bring in new capital to enable Health Net of California to offer consumers additional choices in the state's individual, small group, and large group commercial health insurance market.

Conditions for approval include that none of the costs of the merger, including executive compensation pay-outs, be passed on to consumers; that Centene invest $200 million for a California call center, bringing new jobs to California; and that Centene and Health Net invest an additional $30 million in health facilities for California's low and moderate income neighborhoods.

Health Net must also maintain and grow its commercial line of business and expand Health Net Life's presence and ability to compete in California's health insurance markets.

The merger puts Health Net Life in a better position to compete successfully in a California market dominated by large health insurers Kaiser, Anthem Blue Cross of California, and Blue Shield of California, as well as UnitedHealth, Aetna, and Cigna, Jones said.

Twitter: @SusanJMorse