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Aetna-Humana antitrust trial to hinge on Medicare market

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If Aetna and Humana are allowed to merge, will the 17 million seniors in the Medicare Advantage market be left with too little choice and face higher prices for health insurance? That's the key issue in an antitrust trial on the proposed union set to begin in U.S. District Judge John Bates' courtroom Monday morning.

The Obama administration argues in its pre-trial brief that the $37 billion deal would create Medicare Advantage monopolies in 70 counties and increase market concentration in hundreds more across the country.

Aetna's attorneys counter that the private Medicare Advantage (MA) market competes with the traditional Medicare government program, so that seniors will continue to have choice.

Health department officials are "charged with ensuring that Original Medicare options and Medicare Advantage plans are and remain close functional substitutes for one another," Aetna's lawyers wrote in their brief.

Aetna and Humana also contend that their agreement to sell part of their combined business representing nearly 300,000 members to rival insurer Molina Healthcare will help maintain competition.

The government argues Molina, which specializes in the Medicaid program for the poor, has a poor track record in the Medicare market for seniors.

"Molina's previous attempts to market individual MA plans have been utter failures, and, despite having entered 63 counties since 2008, it is now left with only 424 individuals enrolled in individual MA plans in six counties in the entire United States," wrote lawyers for the antitrust division of the U.S. Department of Justice (DOJ).

"The question that's going to have to be decided is whether size and scale will enable more efficiency," said Rita Numerof, co-founder and president of Numerof and Associates, a health industry consulting firm.

"Unless there is oversight and a way to continuing to monitor the fulfillment of the promise ... the judge should continue to be concerned," she said.

Shifting Obamacare Adds Uncertainty

The shifting health policy landscape in Washington could present a complicating factor in the judge's decision in this case.

In addition to reduced competition in the MA market, the DOJ argues that the Aetna-Humana merger would also hurt the individual Obamacare plan market, where the two competed head to head in 17 markets across George, Florida and Missouri.

Although Aetna pulled out of those exchange markets and more for 2017, shortly after the antitrust complaint was filed in July, DOJ attorneys contend "the court should not allow Aetna to avoid antitrust scrutiny by essentially shuttering its factory."

Since the Trump administration and the Republican-led congress have vowed to repeal Obamacare in the new year, analysts say the government will have a tougher time arguing this part of the case.

"That (market) really is in turmoil now, and the DOJ's argument is based around what a future market might look like, and whether Aetna might step back in," said Evercore ISI analyst Michael Newshel.

"I think it's more likely to come down to the Medicare Advantage issue," Newshel said.

Yet, the future of the MA market could also shift under the republican-controlled congress. Speaker Paul Ryan's plan to replace Obamacare includes a proposal to shift to a subsidized voucher system for future Medicare enrolees.

"That makes this kind of merger challenge all the more important," said Professor Tim Greaney, co-director of the Center for Health Law Studies at St. Louis University School of Law.

"The ultimate effect of having vouchers in the republican plan ... really depends on a competitive insurance market," Greaney said. "The economic evidence is pretty strong that when choice disappears prices go up and quality goes down."

The Aetna-Humana case gets underway just as the first phase of the Anthem-Cigna antitrust trial is wrapping up in Judge Amy Berman Jackson's courtroom. The government's challenge of that $54 billion merger centers on the national employer market.

"It seems like the DOJ is making a pretty strong case" in the Anthem-Cigna trial said Michael Newshel.

"Anthem's tried to nibble at the edges," he said, but "in general, I think the trial's going pretty well for the DOJ."

Both Anthem-Cigna and Aetna-Humana trial courtroom proceedings are expected to conclude at the end of the month.

The judges in both cases have pledged to issue decisions in January.

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