Aetna And Justice Department Outline Merger Arguments

Nov. 29--The future of Obamacare is becoming a major bone of contention in the government's lawsuit that seeks to block Aetna's $37 billion purchase of Louisville-based Humana.

With the opening of the trial scheduled for Monday, court documents show that even Aetna's motives for scaling back participation in Obamacare are becoming an issue between the Department of Justice and the Hartford insurer.

The government filed suit to block the merger earlier this year saying it would create Medicare Advantage monopolies, or at least too much market power, in some counties. Medicare Advantage policies are managed care plans run by for-profit insurers and an alternative to traditional Medicare.

Justice Department lawyers also said the merger would drive Obamacare plans' prices up in 17 counties where Aetna and Humana now compete for customers.

In a pretrial memo filed with U.S. District Judge John D. Bates in Washington, D.C., Justice Department prosecutors wrote that the insurer announced in August that it would stop selling policies on Obamacare exchanges in Florida, Georgia and Missouri as a tactic in the antitrust case.

"A firm should not be able to avoid judicial review by withdrawing from a market in an effort to undermine the government's case -- particularly where it can reverse that decision," they wrote.

Aetna said it decided to stop selling Obamacare policies in 500 counties -- not just the 17 counties where it currently competes with Humana -- because it projected it would lose $300 million in 2016 in plans under Obamacare.

Ultimately, Aetna concluded, "The government's effort to create a sideshow about Aetna's intent does not change the fact that Aetna's exit from the challenged counties forecloses the possibility of any anticompetitive effects in those counties."

Aetna took aim at Obamacare, also known as the Affordable Care Act, which President-elect Donald Trump has said he plans to dismantle.

"It is beyond dispute that ACA exchanges are threatening to collapse under their own weight," Aetna said. "The government appears intent on punishing Aetna for refusing to continue in a deeply flawed program."

Aetna said there is no evidence suggesting it will return to the 17 counties where Humana sells Obamacare plans. Moreover, the company said, "there are real questions whether the exchanges will exist at all after ACA opponents assume control of the executive and legislative branches early next year."

The pretrial moves come as Anthem's attempt to buy Cigna for $48 million enters a second week of an antitrust trial in federal court in Washington, D.C., with many of the same issues raised.

Even if Bates agrees with Aetna, and throws out the Obamacare part of the case, he could still decide the merger violates antitrust laws because of the increase in market share in Medicare Advantage.

According to the government, 23.7 million Medicare recipients live in the 675 counties where Aetna and Humana compete in selling Medicare Advantage plans.

Aetna and Humana say traditional Medicare and Medicare Advantage should be considered all one market, because seniors can choose either system. They note that about a third of Aetna and Humana's new Medicare Advantage customers just switched from traditional Medicare.

Humana's strength in Medicare Advantage was what made it attractive as an acquisition. It sells the most Medicare Advantage plans of any insurer. Aetna is fourth in the market, and only 3 percent of the people it covers with health insurance are covered through Medicare Advantage.

The government says that one of its experts, professor Aviv Nevo of the University of Pennsylvania, says that as a result of the greater market power under the merger, customers would pay $340 million more in premiums each year, and it would cost taxpayers an additional $135 million in federal payments to insurers.

A combined Aetna-Humana would have a monopoly in Medicare Advantage in 70 counties, and would have at least 80 percent of Medicare Advantage customers in 80 counties.

Aetna and Humana have promised to divest Medicare Advantage business in 21 states to Molina, a company that specializes in Medicaid managed care.

In addition to defending itself against monopoly charges, Aetna says that becoming bigger will create savings that will flow to consumers.

Aetna says it will be able to save $2.8 billion as a combined company, and that $330 million in efficiencies would flow directly to consumers.

The savings will come, among other places, from "the elimination of duplicative personnel; savings associated with moving Aetna's relatively cost-inefficient Medicare business onto Humana's relatively cost-efficient Medicare Business."

Aetna CEO Mark Bertolini agreed to send the Medicare segment to Louisville, Ky., in order to convince Humana's CEO to sell.

Aetna's memo also says that the new Aetna will save in information technology, including moving Humana's claims review to Aetna's system; it will use the most favorable contracts between the two firms for procurement; and using Humana's in-house pharmacy will be cheaper than Aetna's pharmacy benefit management contract.

"The efficiencies overwhelm the Government's argument even more when, at best, the Government is hanging its hat on a small minority of counties where the parties compete for Medicare customers and a tiny handful of counties in which they previously competed for public exchange customers," Aetna's lawyers wrote.

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