U.S. District Court Judge John Bates ruled in favor of the U.S. Department of Justice (DOJ) in a lawsuit to block the proposed $37 billion merger between insurance giants Aetna Inc. and Humana Inc. on the grounds it would violate antitrust laws.

The government focused its case on the Medicare Advantage market, which comprises private health plans for seniors. The DOJ asserted that the merger would eliminate competition between the two commercial insurers in 364 counties across 21 states, which would likely result in substantial increases for Medicare Advantage premiums. 

Aetna said the government failed in its argument to include original Medicare coverage as an option in those markets, so elderly individuals would actually have more choices than the DOJ indicated. Aetna also offered to sell a portfolio of nearly 300,000 Medicare Advantage members in markets where risk to competition was a concern.

The judge was not swayed by either rebuttal argument, though, calling them “unpersuasive.” 

“Federal regulation would likely be insufficient to prevent the merged firm from raising prices or reducing benefits, and neither entry by new competitors nor the proposed divestiture to Molina [Healthcare] would suffice to replace competition eliminated by the merger,” Judge Bates wrote in his ruling. 

“We continue to believe a combined company will create access to higher-quality and more affordable care and deliver a better overall experience for those we serve,” said Aetna CEO Mark Bertolini and Humana CEO Bruce Broussard in a joint statement, indicating that they might appeal the decision.

Our Take: This was a bit of a surprise to us. We thought that the Aetna-Humana merger had a better chance than Anthem-Cigna. This ruling all but guarantees that the pending Anthem-Cigna deal will be blocked as well.

All the players will probably seek other, smaller insurance companies to merge with—particularly those that specialize in Medicaid coverage, as states continue to look for assistance from private companies to help them control the cost of their Medicaid programs. But uncertainty surrounding the Trump administration’s plans for repealing and replacing the Affordable Care Act could lead the companies to take a wait-and-see approach.

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