Anthem: Commitment To Buying Cigna As Strong As Ever
July 27--Anthem's commitment to buying Bloomfield-based Cigna "remains as strong as ever," company officials said Wednesday.
Indianapolis-based Anthem planned to close on its purchase of Cigna in a $48 billion deal by the end of 2016, but after the U.S. Department of Justice filed a lawsuit to block the sale, that is unlikely to happen. Anthem now plans to exercise an option to extend the deal's deadline. The DOJ argued that the deal could negatively impact consumers, doctors and hospitals.
Anthem CEO Joseph Swedish told stock analysts Wednesday morning that he expects the trial of the lawsuit to begin in October and last about four months. "Obviously, we're going to run out the litigation as long as it takes," he said.
He said the deal's deadline would be extended to the end of April.
The two companies released markedly different statements last week reacting to the antitrust regulators' actions. Anthem said the lawsuit was misguided and planned to fight.
Cigna said: "Given the nature of the concerns raised by the DOJ and the overall status of the regulatory process, which under the terms of the merger agreement was led by Anthem, Cigna is currently evaluating its options consistent with its obligations under the agreement.
"In light of the DOJ's decision, we do not believe the transaction will close in 2016 and the earliest it could close is 2017, if at all."
The Wall Street Journal reported the two companies were at odds as they worked on submissions to the Department of Justice, and were arguing over integration plans, particularly how much power Cigna CEO David Cordani would wield in the combined company. Swedish plans to stay as CEO for two years should the deal be approved.
Wednesday morning, Swedish said Anthem will start selling Obamacare plans in nine more states that neither Anthem nor Cigna currently are in if the deal closes. "Our acquisition of Cigna will help in stabilizing pricing in this volatile market," he said.
Antitrust lawyers argued that the Anthem-Cigna deal would result in an anti-competitive market and hurt consumers. But in a filing late Tuesday night in federal court, Anthem disagreed. It said the complaint itself notes that Anthem generally obtains lower rates from health care providers than Cigna does, and says in the case of large employers that self-insure, those savings would automatically flow to consumers. Wednesday morning, Swedish projected those savings at more than $2 billion.
It denies that the merger would enhance its power to profit "at the expense of both consumers and the doctors and hospitals providing their medical care," as the DOJ argues.
The company said it didn't know that Anthem and Cigna have a combined market share of at least 40 percent in national accounts where those companies are headquartered in one of Anthem's 14 "Blue Cross" states.
Anthem also complained that the lawsuit quotes its documents and officials out of context and that those quotes are misleading.
The lawsuit says "even large employers are increasingly shifting more of the costs of health care to their employees." Anthem responded that it "lacks knowledge or information sufficient to form a belief about the truth of the allegations relating to employers' cost shifting."
While Anthem beat analysts' expectations in earnings per share, reducing the size of its bonus pool, keeping a tight rein on hiring as it added customers were instrumental in preserving profits as medical spending rose compared to premiums collected.
Anthem also said it no longer believed it could break even on Obamacare policies this year. Instead, it expects to lose roughly $300 million on the close to $7 billion it collects in premiums on the exchanges. It has about 923,000 members through the exchanges.
Swedish said that a higher number of Obamacare customers have chronic diseases like kidney failure, COPD, heart disease and diabetes than the company had expected.
Anthem made a profit on Obamacare policies in 2014 and came close to breaking even in 2015. Earlier, it projected it would break even this year.
Swedish told analysts that the company has asked for approximately 20 percent rate increases across the 14 states where it's on the exchanges. He said if states grant those increases, the policies should be able to achieve profits of up to 2 percent in 2017. Executives warned that if state regulators don't allow those increases, the company will consider exiting those markets, though they used the euphemism that they would be "flexing our engagement."
Anthem and ConnectiCare are the only two companies selling on the exchange in Connecticut now that the non-profit HealthyCT will be winding down its business. In Connecticut, Anthem is asking for a 26.8 percent increase.
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