Aetna and Humana deal faces pushback in Missouri

Humana and Aetna signage.
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Regulators in Missouri have raised a red flag on Aetna's $34 billion acquisition of Humana, calling the deal anti-competitive for the state's Medicare market. It's the first hurdle in the state merger approval process the insurers have encountered.

The state's director of the department of insurance, John Huff, issued a preliminary order saying that if deal is approved by federal regulators the two firms will have to "cease and desist from doing business throughout the State of Missouri with respect to… Medicare Advantage Markets."

Despite the tough wording, the order is not an outright denial of the deal. To address the state's concerns, the insurers will likely have to divest some of their Medicare plans in the market to reduce their combined dominance.


A spokesman for Aetna said the companies are prepared to discuss remedies with Missouri regulators, noting that the order will not impact the pending federal regulatory process at the Department of Justice.

"This order does not impede the DOJ approval process. We are disappointed with the Missouri order but expect to have a constructive dialogue with the state to address their concerns," said T.J. Crawford, Aetna's head of media relations.

Last month, Aetna and Humana said they had obtained 15 of 20 necessary state approvals, and the companies' executives say they still expect the deal to close in the second half of the year.

Elevation LLC analyst Ira Gorsky says while Missouri's order presents a hurdle for the insurers, it amounts to conditional approval of the deal. He doesn't see a problem for the companies to negotiate the required state concessions.

"It's the first state approval to require conditions," said Gorsky. "I think this is normal in the course of the process, and anyone that has been following this closely should have expected divestitures."

Gorsky notes Missouri is one of three states where Aetna and Humana would have a large presence in the Medicare Advantage market as a combined company, along with Texas and Florida. Florida insurance officials approved the merger last February without any concessions; Texas regulators are still reviewing the deal.

Anti-trust attorney David Balto hailed Missouri's decision. Balto represents hospital, union and consumer groups opposed to both Aetna's acquisition of Humana and Anthem's $54 billion dollar deal to buy Cigna, concerned that the mergers between four of the nation's largest insurers will result in less competition and higher prices.

"Missouri's decision provides a concrete roadmap about how consumers will lose if these mergers are approved," Balto said in a statement.

Investors have shown concern over Anthem's ability to secure DOJ approval for its acquisition of Cigna.

The firms have won approvals from a number of states, but some analysts worry the two firms will have difficulty convincing federal regulators that their deal will not hurt competition in the large employer market. On Tuesday, Anthem CEO Joseph Swedish downplayed tensions between the firms.

"You would expect dynamic tension in terms of ultimately deciding what is best-of-breed — what parts do you keep, what don't you keep, who leads what," Swedish said at the UBS Global Healthcare conference in New York.

His comments appear to have reassured investors, shares of Cigna rose more than 3.6 percent on Wednesday, snapping a two-day losing streak. Anthem gained more than 1.9 percent.

Investors also appear to have shrugged off news of the Missouri order. Aetna and Humana rose about 2 percent.