Humana HQHealth insurers Humana and Aetna said that the federal government’s lawsuit to stop their proposed merger is based on “fundamental misconceptions of marketplace realities.”

The companies on Friday filed their responses to a U.S. Department of Justice lawsuit that attempts to block their proposed $37 billion merger on anti-competitive grounds.

Aetna, based in Hartford, Conn., wants to buy rival Humana, which is based in Louisville, where it employs about 12,500.

The companies have said that the merger will allow them to provide better health care at a lower cost to more people. However, the DOJ said the merger would reduce competition and harm consumers.

In the lawsuit, filed in July in the U.S. District Court in Washington, D.C., the Justice Department asserted that Aetna’s acquisition of Humana “would lead to higher health insurance prices, reduced benefits, less innovation, and worse service for over a million Americans.”

Competition between the companies on Medicare Advantage plans and health insurance plans Aetna and Humana sell on the public exchanges established by the Affordable Care Act “benefit Americans who can least afford health insurance,” including seniors and families with little income, the feds said.

“The merger would end this rivalry and deny consumers its benefits,” the suit asserts.
“Competition to attract consumers causes insurance companies to offer lower premiums, improved benefits, more attractive networks of doctors and hospitals and more effective care management,” the DOJ said. “This competition is now at risk.”

The feds also said that the merger would:

  • Eliminate significant present and future head-to-head competition between Aetna and Humana
  • Reduce competition generally
  • Cause prices to rise for customers
  • Cause a reduction in quality
  • Reduce competition over innovation and product development

Humana and Aetna said in their responses that federal regulators did not understand the market and that the complaint about the merger’s impact on Medicare conflicts with the government’s prior interpretation of market dynamics.

Humana said the government’s “legal theory and purported competitive assessments are grounded in — and depend entirely on — fundamental misconceptions of the marketplace realities.”

The government’s lawsuit deals primarily with the proposed merger’s impact on two health care options for older Americans. Medicare is the traditional health care program for them, managed by the federal government. With Medicare Advantage, the benefits are provided through a private health insurer.

According to the Kaiser Family Foundation, Humana and Aetna combined would have an industry-leading 4.4 million Medicare Advantage customers, or about 25 percent of the total MA enrollment of 17.6 million. Kaiser said the companies would have a market share exceeding 50 percent in 10 states and higher than 67 percent in five states.

However, the insurers assert that the government’s argument fails to take into account that Medicare Advantage plans compete with traditional Medicare, and that consumers can switch between the two.

“The Centers for Medicare & Medicaid Services, the agency that administers the Medicare program, presents Medicare Advantage and traditional Medicare plans as equally available options for seniors aging into the program, and confirms that the two are functionally interchangeable substitutes,” Humana said.

AetnaAetna concurred, saying that the government’s “static view of health care marketplaces is based on concentration presumptions that fail to account for commercial realities in the rapidly changing health care industry.”

“The text and legislative history of Medicare, the government’s own website and all the ordinary indicia of a properly defined product market compel the conclusion that both types of Medicare plans are in the same product market,” the insurer said. “In construct and in practice, Original Medicare and Medicare Advantage are the clearest imaginable substitutes for each other.”

The companies maintain that the merger will increase competition and benefit consumers.

“The transaction will combine two complementary companies whose strengths lie in very different sectors of the health insurance business: Aetna focuses largely on the sale of employer- sponsored health benefit plan products, while Humana focuses largely on the sale of individual Medicare products,” Humana said. “The combined company will be better positioned to offer its customers a broad array of health care products and services that are more affordable, higher quality, more technology-driven, and the result of increased innovation.”

Aetna said: “Far from the predictions of dire consequences, this merger will improve the
delivery of health care to millions of people, and will accelerate the industry’s movement toward
lower-cost, value-based care that will serve elderly and low- and middle-income individuals and
families more effectively and efficiently.”

A trial has been set for Dec. 5.