Missouri: Aetna-Humana Merger Anticompetitive

May 26--The Missouri Department of Insurance said that if federal regulators approve the Aetna-Humana merger, the state would block the combined company from selling certain insurance plans because the merger would have anticompetitive effects.

The preliminary order, released Tuesday evening, would block the company from selling individual health insurance (other than catastrophic plans), small group health insurance, group Medicare Advantage and individual Medicare Advantage plans in 65 of Missouri's 114 counties. It does allow Aetna and Humana to submit a plan to remedy the anticompetitive impacts the department has identified, and therefore continue to sell these sorts of plans in the state after a merger.

The companies have 30 days to submit a plan, though the order says the department may allow an extension.

"The Missouri order does not impede the Department of Justice approval process," Aetna said in a statement. "We're disappointed, but expect to have a constructive dialogue with the state to address their concerns."

Missouri cannot block the merger outright, it can only control how the combined company operates within its borders. The Department of Justice, or a federal judge agreeing with DOJ lawyers, is the critical hurdle for the merger. Still, Missouri is the first state to rule against the merger in any capacity.

Aetna spokesman T.J. Crawford refused to say how many policies would be affected if the company is blocked in the specified segments in Missouri next year, or whether losing the premium revenue from those policies would have a material effect on the company's finances.

Missouri Insurance Director John Huff said the companies tried to argue that large companies that self-insure minimize anticompetitive concerns in the individual insurance market, where Aetna is the top player in the state, with nearly 37 percent of the policies. Humana has less than 2 percent of that market. But the statutory threshold that establishes evidence of violation is 15 percent and 1 percent for the two firms. He rejected the companies' argument as having no substantial evidence that the self-insurance trend impacts the individual market.

He also said that the companies offered no substantial evidence on the impact of the merger in the small group market, where Aetna is the fourth largest player, with 12 percent of market share, and Humana has 6 percent market share. The statutory threshold for anticompetitive concentration is 10 percent and 2 percent.

With regard to Medicare Advantage, both individual and group plans, Huff said the companies tried to argue that traditional Medicare is a competitor in the space, but Huff dismissed that argument.

That argument is one that the companies will also be making to the Department of Justice.

In group Medicare Advantage, Aetna is third in market share in the state, with close to 19 percent and Humana is fourth, with close to 11 percent, and the statutory thresholds are 15 percent and 1 percent.

In individual Medicare Advantage, Aetna and Humana have enough concentration to exceed the statutory thresholds in 65 of Missouri's 114 counties, including some of the largest markets, like St. Louis. In 33 counties, the two companies' combined share exceeds 70 percent of the policies.

Aetna is first in market share in individual Medical Advantage plans in the state, and Humana is third.

Post-merger, the department said, 85 Missouri counties would have two or fewer companies selling Medical Advantage.

Humana's strength in Medicare Advantage is the primary reason Aetna found it an attractive acquisition target, as the segment, along with Medicaid, is one of the few rapidly growing sectors in health insurance.

The major insurers have argued that cost savings post merger would be passed along to customers. Huff questioned the certainty of those efficiencies coming to pass -- he said Aetna's testimony was that the efficiencies were not independently verified.

"Gregory Martino, Assistant Vice President for Aetna Inc. in state government affairs, admitted that none of his testimony applied specifically to Missouri," the order states.

The companies have also argued that by combining forces, they would be able to innovate in the products offered.

"Gregory Martino was unable to testify to any definitive plans of Aetna to offer any new products post merger in Missouri that are not currently offered by either Aetna or Humana," the order said.

So, Huff ruled, he found no public benefits to the merger that would exceed the harms of less competition.

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