Despite overwhelming shareholder approval, Aetna’s proposed $37 billion acquisition of Louisville-based Humana still faces a potentially tough hurdle: scrutiny from federal regulators.

A Western Kentucky University economics professor — and former employee of one of the regulating bodies — said he would be surprised if the merger sailed through the approval process.

The topic of mega health care company mergers — Anthem also wants to acquire Cigna — last week became a topic in the race for the White House, with Democratic presidential hopeful Hillary Clinton voicing “serious concerns” about the proposals.


Health care stocks took a beating for two days after Clinton’s statement, with Humana’s shares plunging nearly $21 or 11.2 percent.

Before either deal can be completed, federal regulators — the Federal Trade Commission or the U.S. Department of Justice — have to give their approval. Each state in which the companies operate must conduct a separate review.

Both buyer and seller must file forms and provide data about the industry and their business with both the FTC and the DoJ. Only one of the agencies, in this case the DOJ, conducted the initial review, which can take up to 30 days.

Aetna filed this so-called pre-merger notification earlier this year, then refiled it in August. Aetna spokeswoman Cynthia Michener said via email this week that such a refiling was typical in large transactions and gives the DoJ additional time for review.

After it completed the initial review, DoJ stepped up its scrutiny of the deal last month by requesting additional information from Aetna.

David Zimmer, associate professor of economics at WKU, said that given political pressures and the attention the proposals have received, federal scrutiny beyond the initial review is not a surprise.

What the feds want to know

Zimmer, who formerly worked at the FTC, said that in a closer examination the regulators will try to determine whether the merged company would have monopoly powers, which would drive up prices and present a harm to consumers.

A federal review can have one of three major outcomes, two of which — an outright approval or rejection, which the companies could fight in court — are rare.

The third, and most likely outcome, Zimmer said, is an approval that requires the companies to take some action, such as selling a portion of a business that regulators believe would give the merged company monopolistic powers.

For example, if both companies were the sole health insurance providers in Louisville — but not anywhere else — regulators could ask the companies to spin off their Louisville segment or sell it to a competitor.

In 2012, when Humana acquired Arcadian Management Services, the DoJ objected on antitrust grounds, and the companies had to sell parts of their business for the deal to receive federal approval. The process took about seven months after the DoJ filed a civil lawsuit to prevent the acquisition on grounds that it would “substantially lessen competition in the sale of Medicare Advantage health insurance plans.”

Both Zimmer and Jose Fernandez, associate professor of economics at the University of Louisville, said the federal analysis of the merger’s impact can get very complicated.

Fernandez said regulators likely would subpoena health claims data from both Aetna and Humana — but also from others in the industry, to determine their pre- and post-merger market shares.

The feds also will try to anticipate how other companies in the industry will respond to the merger, to get a more accurate picture of the merger’s impact on consumers.

Zimmer said the analysis can prove difficult because regulators are trying to determine the impact of a hypothetical company in a hypothetical market.

“It’s a tough statistical problem,” he said.

Fernandez said one of the immediate concerns for regulators likely will be the lower number of major players in the industry: The Aetna-Humana and Anthem-Cigna mergers would reduce the nation’s top five health insurance companies to three.

“Is that reduction of choice going to lead to higher premiums?” Fernandez asked.

The merged company likely would see savings because a greater number of consumers would allow the company to spread risk. It’s the same concept as for car insurance companies, Fernandez said: The more drivers a company covers, the more it spreads risk.

The companies have said the merger would cut costs in part because the combined company would have greater leverage to negotiate for prices with providers, which could reduce costs to consumers.

That’s true, Fernandez said, but a merger also could reduce competition. A smaller number of health insurance providers can ask for higher premiums, because consumers will not be able to switch insurance companies as easily as before.

“That’s the trade-off,” Fernandez said. “Will they actually pass on the cost savings — or demand higher prices?”

Fernandez said it’s OK if the deal benefits the companies — so long as it also benefits consumers.

The merged company could pass on part of its savings to the consumer and keep part of the savings for itself to increase its profits.

You just don’t want only the company’s profits to rise, Fernandez said.

Zimmer said that the research, depending on the industry, is mixed, with some studies showing mergers result in higher prices for consumers, while others show the opposite.

Humana, Aetna: Merger good for consumers

Humana spokesman Tom Noland said via email that “the combined company will offer a broader choice of products and services, access to higher quality and more affordable care and a better overall experience in more locations around the country.”

Noland said the companies can improve health care and quality, which would reduce costs.

Humana_logoAnd, he said, Humana has proven it can get quality care to people at a price they can afford: “For the past five years, Humana has offered one of the lowest-priced Medicare prescription drug plans on the market. … For 2016, (the plan) features the lowest monthly premium in all but four states across the U.S.”

But Hillary Clinton, for one, has her doubts about the mergers’ benefit to people outside the company.

“I am very skeptical of the claim that consumers will benefit from them because the evidence from careful studies shows that too often the companies end up pocketing profits rather than passing savings to consumers,” she said last week.

Prominent health authorities, including the American Medical Association and the American Hospital Association, also have urged regulators to take a close look at the mergers.

The American Medical Association said last month that the mergers “would exceed federal antitrust guidelines to preserve competition in as many as 97 metropolitan areas.”

“A lack of competition in health insurer markets is not in the best interest of patients or physicians,” said Dr. Steven J. Stack, AMA president. “If a health insurance merger is likely to erode competition, employers and patients may be charged higher than competitive premiums, and physicians may be pressured to accept unfair terms that undermine their role as patient advocates and their ability to provide high-quality care.”

AHA President and CEO Rick Pollack told the U.S. Senate’s Subcommittee on Antitrust, Competition Policy and Consumer Rights last month that the “unprecedented level of consolidation” of these mergers “could be a blow to millions of health care consumers, as well as the hospitals, doctors and others who are working to improve quality and efficiency.”

What’s next?

According to the SEC, Aetna CEO Mark Bertolini in August said in a quarterly employee meeting that company leaders had begun to meet with state and federal regulators.

“I think everybody is positive so far,” Bertolini said. “Nobody is overtly negative.”

The Department of Justice told Insider Louisville via email that it “does not comment on pending matters or proposed transactions.”

Aetna spokeswoman Cynthia Michener said the Connecticut-based company is responding to DoJ’s request for additional information.

“This process can take several months,” she said.

Both companies have said they expect the transaction to be completed in the second half of next year.

Click here to read about the state’s review of the proposed Humana-Aetna deal.