Humana horizontal

Aetna’s proposed acquisition of Humana has received its first negative diagnosis: Missouri’s top insurance official has ordered that if the health insurance giants merge, they must stop doing business in about half of the state.

Missouri Department of Insurance Director John M. Huff wrote that allowing the combined company to do business in the state would, at least in some markets, stifle competition and harm consumers.

Aetna told IL today that it was “disappointed” but emphasized that the order is preliminary and had no bearing on the federal approval process.

Aetna, a Harford, Conn.-based insurance giant, wants to buy its Louisville-based rival Humana for $37 billion. Before the acquisition can proceed, each of the 20 states in which the companies do business have to give their approval after making sure the deal does not substantially lessen competition in their territories.

Federal antitrust regulators also are separately analyzing the deal’s impact on health insurance competition. The DoJ’s antitrust chief has said the health insurance mergers — Anthem and Cigna also want to join forces — demand tough scrutiny.

The companies have said the acquisition would cut costs and improve care.

Missouri is the first state to raise objections to Aetna’s proposed acquisition, saying it would “substantially lessen competition” in “a few specified lines of insurance,” including Medicare Advantage.

Aetna leaders have said they had received the go-ahead in more than two-thirds of the 20 states in which they operate. Kentucky’s insurance commissioner approved the acquisition in February. The federal case, before the U.S. Department of Justice, is still pending.

John M. Huff

John M. Huff

Huff wrote Tuesday that if Aetna’s acquisition of Humana were consummated, “Aetna Inc. and all of its subsidiaries, and Humana Inc. and all of its subsidiaries, (would have to) cease and desist from doing business” in 65 of the state’s 114 counties.

Huff wrote that he found “substantial evidence” of the acquisition’s anticompetitive effect in various areas of the companies’ lines of business.

The order includes detailed market share data and pointed to the highly concentrated insurance market in some Missouri counties as evidence that the acquisition would reduce competition to an unacceptable level.

The data show, for example, that in the individual Medicare Advantage market, Aetna and Humana combined hold a market share exceeding 65 percent in 38 of the state’s 114 counties. In eight counties, the companies’ market share exceeds 90 percent.

Huff wrote that market share data show that four major insurance markets — comprehensive individual, comprehensive small group, individual and group Medicare Advantage — are “highly concentrated” and that Aetna’s acquisition of Humana would violate the state’s competitive standards.

Huff pointed out, for example, that the two companies provide coverage to 53 percent of Missourians enrolled in Individual Medicare Advantage plans. The companies’ share in the three other markets ranged from about 18 to about 39 percent.

Huff also wrote that neither company made a convincing case that any of the acquisition’s benefits would trickle to the state’s insurance customers.

“Neither Aetna nor Humana presented sufficient evidence to demonstrate that the public benefits of … economies (of scale) would exceed the public benefits which would arrive from not lessening competition.”

Aetna and Humana have at least 30 days to “submit a plan to remedy the anticompetitive impact of the acquisition.”

Aetna told IL via email that it was disappointed with the Missouri order but expects “to have a constructive dialogue with the state to address their concerns.”

Aetna-300x219Aetna also pointed to letters from Missouri health care organizations to the state’s insurance department as evidence of the proposed acquisition’s positive effects: The Missouri Primary Care Association, an organization of community health centers, wrote it believes its “mutually beneficial relationship with Aetna” will strengthen as a result of the acquisition. Daniel W. O’Neill, the CEO of MissouriHealth+, which also operates community health centers, wrote that Aetna’s acquisition of Humana could increase patient satisfaction and lower costs.

However, some national health care organizations, including the American Medical Association and the American Hospital Association, oppose the acquisition, saying it would reduce competition and increase costs.

Humana, which employs about 12,000 in Louisville, could not be immediately reached this afternoon.