California Insurance Commissioner Dave Jones urged federal officials to block the merger of health insurance giants Anthem Inc. and Cigna Corp., declaring the $54-billion deal anti-competitive and harmful to consumers.
The state insurance department doesn’t have the authority to thwart the merger on its own, but Jones’ recommendation Thursday could carry considerable weight in Washington and hinder the companies’ efforts to win federal antitrust approval.
Jones said the Anthem-Cigna merger would likely result in higher costs for consumers and businesses, fewer choices for coverage and a lower quality of medical care. He said the California health insurance market was already highly concentrated among four large companies, and this deal would only make matters worse.
“Bigger is not better for California consumers,” Jones said at a press conference in Sacramento. “I urge the Department of Justice to use its authority to block the Anthem and Cigna merger because of its anti-competitive effects.”
Anthem criticized Jones’ decision and expressed confidence it would obtain the necessary government approval for the merger.
“We do not believe that the California Department of Insurance’s opinion is based on the true merits of this transaction,” Anthem said in a statement. “We are confident that the highly complementary nature and limited overlap of our organizations that will benefit the complex and competitive health insurance markets will be reviewed on the facts by the Department of Justice and appropriate state authorities.”
The U.S. Department of Justice is investigating the merger, and federal officials could seek divestitures to reduce market power or try to block it entirely on antitrust grounds.
Anthem said it has received approval from 12 states thus far, but other reviews are pending. Jones said he was the first state insurance regulator to formally oppose the Anthem deal.
California’s other insurance regulator, the Department of Managed Health Care, is still examining the merger as is Connecticut, which plays a critical role since Cigna is based there.
The decision in California was being watched closely across the country by consumer groups, medical providers and Wall Street investors.
In addition to Anthem’s proposed acquisition, another merger proposal between Aetna Inc. and Humana Inc. would consolidate the U.S. health insurance market from five major players down to three. Jones hasn’t issued a decision yet on the Aetna-Humana tie-up.
The insurers contend that their mergers will enable them to eliminate unnecessary costs and deliver more affordable benefits to employers and consumers.
But Jones soundly rejected that argument from Anthem, saying its claims of $2 billion in savings were “vague” and “not credible.”
“There is simply no guarantee that these savings would benefit policyholders,” he said.
Jones expressed concern about Anthem and Cigna gaining a significant share of the market for administering benefits of self-insured employers. He said the combined companies would have 61 percent of that employer market in California.
“This suggests Anthem would gain a monopoly share of the market,” Jones said.
Some big employers nationwide have raised similar worries about having fewer competitors to choose from.
Jones also cited Anthem’s history of big rate hikes and said increased market power could trigger even more.
Consumer advocates applauded Jones’ move and urged California’s managed-care regulator to voice similar opposition to federal officials.
“The U.S. Department of Justice should reject this $54 billion merger that is about padding health insurers’ profits, not improving consumers’ health care,” said Carmen Balber, executive director of Consumer Watchdog, a Santa Monica-based advocacy group. “Anthem cannot provide proof of savings, or any benefits to consumers from this merger because there will be none.”
Since 2013, Balber said, Anthem Blue Cross has imposed $145 million in rate hikes that California’s insurance department has deemed unreasonable but doesn’t have the power to stop under state law.
Anthem has defended its rate increases, saying they reflect the rising cost of medical care industrywide.
If the Anthem-Cigna deal is completed, the combined company would have more than 54 million members, making it the largest U.S. health insurer. It would generate an estimated $117 billion in annual revenue. Anthem would also become California’s largest health insurer, topping HMO giant Kaiser Permanente.
In 2014, Anthem, Kaiser, Blue Shield of California and Health Net controlled 85 percent of the state’s health insurance market for employers and individuals, according to Jones. By adding Cigna, Anthem’s market share alone would exceed 50 percent in 28 of California’s 58 counties, the insurance department estimated.
The Anthem-Cigna merger has been rocky from the start. The two sides bickered publicly during negotiations last summer before finally reaching a deal.
Industry analysts have been growing more pessimistic about the chances that the deal will actually be consummated.
Ana Gupte, a health care analyst at Leerink Partners, said even without direct jurisdiction over the deal, the California insurance department’s opposition spells further trouble for it.
“California is an important state for this merger, and we expect it to be material to the broader antitrust scrutiny,” Gupte said.
Jones, a Democrat and an elected insurance commissioner, is running to be California Attorney General in 2018. He has supported other insurance acquisitions.
In March, the commissioner approved a smaller merger in hopes it would boost competition in the state against heavyweights like Anthem. He gave the green light to Centene Corp.’s $6 billion acquisition of Health Net Inc., which is the state’s fourth-largest health insurer.