The largest merger of health insurers in U.S. history is being challenged on antitrust grounds by the Obama administration, which contends it would increase the companies’ dominance and cut consumer choice. The companies, which are feuding, contend it will save consumers money.
Anthem, Cigna and the U.S. government offered a federal judge widely divergent views of the impact their proposed $48 billion combination will have on health-insurance markets.
Justice Department lawyer Jon Jacobs said at the start of an antitrust trial in Washington that the biggest merger in the history of the American health-insurance industry should be blocked because it will increase the companies’ dominance and cut consumer choice.
Anthem’s attorney, Christopher Curran, responded that the combined company will be able to lower rates paid to health-care providers and that those savings will be passed on to employers. Anthem CEO Joseph Swedish, who is slated to testify, sat a few feet away.
It will be up to U.S. District Judge Amy Berman Jackson to determine which side has the most persuasive evidence during a two-part trial that’s scheduled to span more than a month. In the first phase, the U.S. will attempt to prove the combined company will hurt large national employers. In the second, set to start Dec. 12, the trial will focus on the proposed tie-up’s effect on local markets.
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The merger is the most complex in the industry’s history and will harm consumers in at least 60 markets, Jacobs said, adding the judge should reject the companies’ argument that by combining they will be able to lower rates.
Those savings don’t count “if the only way you get them is through more market power,” he said. “The more concentrated the market, the more likely you’ll have higher prices, lower quality, reduced consumer choice and less innovation.”
The Anthem-Cigna lawsuit is one of two federal health-care antitrust cases going to trial in the final months of the Obama administration. The second case, against the $38 billion tie-up of Aetna and Humana, opens Dec. 5 before another Washington judge.
By challenging the deals earlier this year, the administration seized an opportunity to further shape the future of health care after passage of the Affordable Care Act.
President-elect Donald Trump has said his administration will be more pro-business but has also said he would block AT&T’s plan to buy Time Warner.
The American Medical Association is also opposed to the merger, saying it will reduce consumer choice.
“Allowing Anthem and Cigna to create a health-insurance Goliath would compromise physicians’ ability to advocate for their patients,” AMA President Andrew Gurman said in an emailed statement as the trial started. “Competition and choice hang in balance.”
Jackson, a 2011 Obama appointee, heard the parties’ opening statements before a full courtroom, with spectators also filling a second courtroom.
Anthem is a member of the Blue Cross and Blue Shield Association and operates under a Blue license in all or parts of 14 states. By combining with Cigna, Anthem’s share of the national-account market in those states would be about 48 percent, according to the government’s presentation.
Anthem said there’s plenty of competition in the market because large companies don’t have to rely only on national networks to provide insurance to employees. They can turn to regional insurers, Curran said.
IBM, for example, uses multiple insurers for its employees, he said. “It’s a menu selection these employers make.”
The run-up to the Anthem-Cigna trial was marked by acrimony between the companies, with each accusing the other of breaching terms of their deal. Cigna stands to collect a $1.85 billion breakup fee if the merger is blocked.
Jacobs said that while merging the insurers would be a difficult task “under the best of circumstances,” in this case there was “an unusual amount of conflict” between those businesses.
Curran responded that the “strained relations” won’t hurt integration. The insurers are working well together, he told the judge.
Last month, the government won an order compelling the companies to turn over written correspondence between the two, which the government argued was relevant to combating the carriers’ claims that their combination would create a more efficient company. The government could use those letters as evidence during the trial.
Backing the Justice Department are 11 states, including New York, California and Connecticut, plus the District of Columbia.