The $54 billion deal would have created the largest health insurance company in the nation

By John Ingold | The Denver Post
PUBLISHED: February 11, 2017 at 8:00 am | UPDATED: February 12, 2017 at 2:43 pm

A federal judge in Washington, D.C., this week blocked the proposed mega-merger of health insurance heavyweights Anthem and Cigna.

The $54 billion deal — Anthem was trying to acquire Cigna — would have created the largest health insurance company in the nation. But it also would have had some pretty significant consequences for Colorado. Let’s dive in:

What happened with the merger?

A judge in D.C. ruled in a lawsuit brought against the two companies by the U.S. Justice Department and the attorneys general in 11 states. The lawsuit argued that the merger would violate antitrust laws — basically, Anthem and Cigna are so huge that, when combined together, they would smother competition in the health insurance marketplace. And that would be bad for consumers (i.e., you and me and everybody else who buys health insurance) because it would reduce the incentive to keep costs low and would likely instead drive up the prices of insurance plans.

And the judge agreed?

Absolutely.

U.S. District Judge Amy Berman Jackson noted that Cigna and Anthem are two of only four insurers currently that offer a nationwide network capable of serving the country’s largest employers. That alone was reason to block the merger,  she wrote, although she suggested that Anthem’s and Cigna’s combined might in other areas of insurance also caused concern.

“[T]he proposed combination is likely to have a substantial effect on competition in what is already a highly concentrated market,” the judge wrote in her opinion.

Are Anthem and Cigna a big deal in Colorado?

Very.

In the individual market — these are the plans that people buy independently, mostly through Connect for Health Colorado, the state’s Affordable Care Act exchange — Anthem and Cigna are the second and third largest insurers, respectively. In 2016, they combined to cover about one out of every three people buying plans on the exchange.

And the complaint filed in the federal lawsuit says the companies’ haul is likely higher this year because two other big insurers dropped off the Colorado exchange for 2017. For instance, Cigna and Anthem are the only two insurers offering plans on the state exchange in La Plata and Montezuma counties this year, according to the state Division of Insurance, and they face competition from only one or two other insurers in a handful of other counties. In large parts of the West Slope, Anthem is the only insurer on the exchange.

Individual insurance plans account for only about 8 percent of the market in Colorado. But Anthem, and to a lesser extent Cigna, are also players in the employer-sponsored insurance world — which is 50 percent of the state’s insurance market. In 2014, Anthem — listed under its previous name, Wellpoint — was the largest insurer in the state’s small group market and the second-largest in the large group market, according to a report by the Kaiser Family Foundation, a nonprofit group that is not affiliated with the insurer and health care provider Kaiser Permanente.

In filings with the state, the two companies claimed that, overall, Anthem and Cigna accounted for 17.5 percent of the total health insurance market in Colorado in 2014. That figure placed them behind Kaiser by about 10 percentage points.

Was Colorado concerned about the merger, then?

Yes.

Colorado Attorney General Cynthia Coffman was among the state AGs joining the lawsuit to stop the merger. After Jackson blocked the merger, Coffman put out a statement, saying, “Health insurance competition is an inherently local concern. Colorado residents, businesses, health care providers, and third party payors all have a vested interest in ensuring that the quality, quantity, and price of health care services remains competitive. Today we have successfully maintained that vital competition.”

The Colorado Medical Society and other groups also raised concerns.

If the judge hadn’t stopped the merger, was there anything Colorado could do?

Because both Anthem and Cigna are domiciled in Colorado — which is a fancy way of saying they have subsidiaries based here — the state Division of Insurance has taken an active role in reviewing the merger. Vincent Plymell, a spokesman for the division, said state regulators ultimately could have ordered Colorado-specific arrangements for the merger to protect consumers.

For instance, the regulators could have ordered one of the companies to divest its interests in a particular area of business to preserve competition in the state. It’s complicated, but think of it like how beer brewer SABMiller had to sell off its stake in Molson Coors in order for its merger with Anheuser-Busch InBev to go through.

Before the federal lawsuit was filed, the Division of Insurance was in the process of setting up a public meeting for people to comment on the merger.

What were Anthem and Cigna’s arguments for why the merger should be allowed?

In preliminary filings with the Division of Insurance, the two companies argued, basically, that a bigger insurer would equal lower costs.

“The combined company will be able to serve customers better by offering a broader line of affordable, quality health insurance products,” the companies wrote in one state filing. “The combined company will realize significant synergies and cost savings that will enable it to operate and compete more efficiently[.]”

In the federal lawsuit, the companies pushed that argument even further, saying the merged company would have more leverage with doctors and hospitals to hold down the rising costs of health care. Which sounds great, but Jackson wondered in her ruling whom it was great for.

“Anthem is asking the Court to go beyond what any court has done before: to bless this merger because customers may end up paying less to healthcare providers for the services that the providers deliver even though the same customers are also likely to end up paying more for what the defendants sell,” she wrote.

“[T]his is not a cognizable defense to an antitrust case; the antitrust laws are designed to protect competition, and the claimed efficiencies do not arise out of, or facilitate, competition,” she later continued. “Moreover, Anthem’s own documents reveal that the firm has considered a number of ways to capture the network savings for itself and not pass them through to the customers as it insisted in court that it would.”

Youch.

So what happens now?

Anthem announced on Thursday that it plans to appeal, meaning the federal court case will roll on for at least a little bit longer. And regulators at the state level are just waiting to see what comes of that before continuing with their review of the merger.

“We’re basically going to be in a holding pattern,” the Division of Insurance’s Plymell said.