After opposing to the pending merger of Anthem Inc. ANTM and Cigna Corp. CI, the California Insurance Commissioner Dave Jones has now raised his voice against another pending mega merger between Aetna Inc. AET and Humana Inc. HUM. Jones urged national antitrust regulators to block the deal by raising concerns over the viability of the deal. He contends that the mega deal, worth $34 billion, would curb competition and hurt consumers in the state, rather than doing good as professed by the companies involved.
This resistance from Jones comes after the deal got a green signal from California's other insurance regulators. The approval, however, came with riders like the acquiring company will have to keep premium increases at bay and invest $50 million in communities.
During the first-quarter earnings release, Aetna indicated that its pending acquisition of Humana is progressing well and will be closed in the second half of 2016. So far, the deal has received approvals from almost 14 of the 20 necessary states, while six state approvals are remaining. The company is also working closely with the Justice Department which is conducting its review on the deal.
According to Jones, the merger will lead to market consolidation and cause a greater concentration in the health insurance market in the already saturated California. The acquisition would mean the absence of one more insurance company from the market and more power in the hands of the acquiring company, which will gain in size and scale. Greater power might result in mistreatment of customers by the company by way of insufficient handling of grievances or undue hike in premium.
These concerns are not baseless. Looking back at the pre- Obamacare industry, the prevalence of consolidation and market dominance had resulted in decline in competition. Big insurers, dominating large markets, hardly ever bothered to provide even basic information to consumers, such as the performance of health insurance policies, procedures to claim, the size of the provider network and cancellation procedures.
The executives of the companies involved however, are defending the deal by saying that the merger will help them to add scale to their businesses and enable unnecessary costs incurred in duplication of services provided to patients. They are also of the opinion that by gaining in size they will be in a better position to negotiate with hospitals for claims and lower their overall administrative costs. Investment in technology from the saved costs, expanded access to care by gaining quick access to new markets are the other advantages of the merger cited by them.
Though Obamacare reined in the malpractices by the players, it is feared that some of these may occur again with only a handful of players in the market creating an oligopolistic structure.
Aetna carries a Zacks Rank # 3 (Hold).
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