U.S. gov files lawsuits against giant health insurer deals

On Thursday, U.S. Department of Justice files the lawsuits against two mega deals, Anthem’s (NYSE: ANTM) proposed acquisition of Cigna (NYSE: CI) valued at $54 and Aetna’s (NYSE: AET) proposed acquisition of Humana (NYSE: HUM) valued at $37 billion, alleging that the transactions would increase concentration and harm competition across the country, reducing from five to three number of large, national health insurers in the nation.

The current five biggest healthcare insurers are UnitedHealth (NYSE: UNH), Anthem, Aetna, Cigna and Humana in descending order.

Those two acquisition transactions, expected to close in the second half of 2016, were proposed in last summer, claiming that the combination will enhance health care access, quality and affordability. Yet, Cigna said in a statement on Thursday, “In light of the DOJ’s decision, we do not believe the transaction will close in 2016 and the earliest it could close is 2017, if at all.” In a separate statement, Aetna and Humana said they would “vigorously defend” their pending transaction. Anthem said in its statement that the action was “an unfortunate and misguided step backwards for access to affordable healthcare for America.”

A massive conflict of interest was involved in all fields, not only from the economic perspective but also from profound and lasting social impact. Only time will tell.

Starting from the consumers’ point of view, they may have to pay higher premiums considering less options of health insurers, if the big five become the big three. For the healthcare providers such as doctors and hospitals, they may receive lower payments from insurers because the insurers will obtain greater purchasing power from market concentration. What’s more, U.S. government is the largest single healthcare payer. Medicare pays about 22% while Medicaid accounts for about 17%. Last, health insurers are faced with increasing regulatory cost and the need of transition from fee based service to value based service. It may be a good choice for them to merge to reduce cost and generate synergies.

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