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Obama administration moves to block health insurance mega-mergers

The Obama administration went to court Thursday to block two major health insurance mergers, siding with consumer advocates and medical groups worried that the consolidation of large national health plans could lead to higher premiums.

The long-anticipated move by the Justice Department and attorneys general in California and 10 other states,  will at least temporarily prevent Anthem Inc.’s $48-billion purchase of Cigna Corp., a combination that would create the nation’s largest health insurer.

And it will stop Aetna Inc.’s $34-billion bid to acquire Humana Inc., a merger that would have combined the nation’s third- and fifth-biggest health plans.

“Competitive insurance markets are essential to providing Americans the affordable and high-quality healthcare they deserve,”  Atty. Gen. Loretta E. Lynch said Thursday after the suits were filed in federal district court in Washington. 

“These mergers would restrict competition for health insurance products sold in markets across the country and would give tremendous power over the nation’s health insurance industry to just three large companies,” she said. “Our actions seek to preserve competition that keeps premiums down and drives insurers to collaborate with doctors and hospitals to provide better healthcare for all Americans.”

California Atty. Gen. Kamala Harris warned that the mergers would “threaten the availability and quality of medical care” around Los Angeles and other California markets.

The lawsuits are unlikely to end maneuvering in the health insurance industry, as health plans try to bolster their positions in a fast-changing industry still being reordered by the 2010 Affordable Care Act. 

In the last year alone, Los Angeles-based HealthNet merged with Centene Corp., a leading Medicaid plan. And Oakland-based Kaiser Permanente acquired Washington state’s Group Health Cooperative, another well-regarded nonprofit plan. 

Three of the four companies being challenged by the Justice Department said they plan to contest the move.

In a joint statement Thursday, Aetna and Humana said they would “vigorously defend” their deal.

“A combined company is in the best interest of consumers, particularly seniors seeking affordable, high-quality Medicare Advantage plans,” the companies said.

Anthem said Thursday that it was “fully committed” to challenging the Justice Department suit in court “but will remain receptive to any efforts to reach a settlement with the DOJ that will allow us to complete the transaction.”

The company called the suit “an unfortunate and misguided step backwards for access to affordable healthcare for America.”

Cigna said it was “evaluating its options” and does not believe the deal could close until 2017 at the earliest, “if at all.”

Justice Department officials said Thursday that they did not see a way to negotiate settlements that would allow the mergers to go forward if, for example, the insurers divested some assets, as companies often do in the face of antitrust concerns.

They noted that in many parts of the country, the consolidations would leave employers with almost no choice when selecting health plans for their employees or would leave seniors with just a single option when choosing a Medicare Advantage plan.

Additionally, officials noted that work by Cigna and Humana to improve quality had forced Anthem and Aetna to do the same, showing the value of competition.

Consumer group quickly praised the Obama administration’s move to block the mergers, which Consumers Union said would have been a “major setback for consumers."

It is uncertain how long the legal wrangling could take and whether the showdown between the administration and four of the nation’s five largest insurers could have broader impacts on the nation’s healthcare system.

The administration has leaned heavily on insurers to help implement the 2010 health law, often called Obamacare.

On Thursday, Humana announced that next year it would pull out of Obamacare marketplaces in eight of the 19 states where it had sold plans in 2016. The announcement, which company officials had warned would be coming, follows a similar retrenchment announced earlier this year by UnitedHealth Group, the nation’s largest health plan. 

Meanwhile, others questioned whether the Justice Department’s moves against insurance consolidation would heighten scrutiny of other health sectors.

For years, hospitals and physician practices have been merging around the country, creating increasingly concentrated markets dominated by one or a handful of huge medical systems.

Around Pittsburgh, for example, UPMC, which began as the local university hospital, now owns 20 hospitals and accounts for nearly two-thirds of the medical-surgical market in Allegheny County, according to the medical system. 

And in northern California, Sacramento-based Sutter Health owns 24 hospitals, prompting rising complaints from insurers and large employers.

Many experts believe this consolidation is at least as harmful to consumers as insurance mergers because there is growing evidence that so-called provider consolidation is dramatically driving up prices for medical care.

“This is a huge issue for our country,” said Martin Gaynor, a Carnegie Mellon health economist who has researched consolidation. “If we don’t do something about this now, we will have an even more consolidated, expensive, unresponsive health system than we have already, and once this happens, it will be extremely difficult, to impossible, to change.”

Americans already pay the highest prices for their care in the world, surveys show.

But unwinding hospital mergers or separating medical systems from physicians’ practices they have acquired is far more challenging than blocking an insurance merger, said Dr. Robert Berenson of the Urban Institute, a Washington-based think tank.

“You can’t unscramble the egg,” he said.

The stocks of all four companies were up Thursday, led by an 8.3% gain by Humana. Cigna shares rose 5.4%, Anthem was up 2.6% and Aetna rose 1.6%.

noam.levey@latimes.com | Twitter: @noamlevey

jim.puzzanghera@latimes.com | Twitter: @JimPuzzanghera

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UPDATES:

1:20 p.m.: The article was updated with stock prices and additional background.

 9:10 a.m.: This article was updated after the Justice Department’s news conference.

This article was originally published at 8:10 a.m.

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