The top national insurance companies have a hard time in making profits after Obamacare came into existence. Recently, Anthem Inc proposed a merger with Cigna Corp and the deal was worth $54 billion. However, the US court came forward to block this merger citing that consolidated health insurance industry will result in increased insurance costs for the citizens. The US Justice Department filed a case against the merger of Anthem and Cigna in July. With the merger, a large corporation with the highest number of health insurance members would have been formed.
Previously, the proposed merger of Aetna and Humana which was worth $33 billion was also stopped by the court. The insurance market is highly concentrated with only 5 top national players. If both the mergers were allowed, the top companies would have been shrunk to 3.
As a result, the lack of competition will drive the prices of insurance. Judge Amy Berman ruled against the merger so that the insurance market remains competitive. Just last month, another US judge stopped the merger of Aetna and Humana.
The hearing for the case against Anthem and Cigna were divided into two trials. The Justice Department said that the merger will prevent national employers from finding competitive healthcare coverage for their workers. Also, there will be overlap between the merging companies in selling health insurance benefits, especially Medicare to the elderly population.
The corporations argued that the competition in the market is alive as the large insurance companies often use small players in the market. The judge disagreed this argument stating that the smaller players don’t have a national network and they can't cater to the national accounts. The presence of smaller companies doesn’t overrule the anti-competitive impact of the merger.
Anthem is keen on filing an appeal to reverse the decision of the court to go ahead with the merger. Cigna wants to evaluate other options and understand the opinion before taking any action. Top legal experts suggest that the appeal won't be as successful as the corporations want it to be. The highly concentrated market prevents the entry of large competitors and the merger is between leading rival companies.
Anthem and Cigna announced the deal during the presidency of Barack Obama. The national healthcare reforms made it difficult for the insurance providers to enjoy huge profits even though growth was not hindered. The insurance companies supported the deal claiming that Obamacare products became expensive for the companies and they had to scale. Now, the healthcare market has changed dramatically. Republicans and President Donald Trump are keen on repealing and replacing Obamacare and new changes will be introduced in the insurance sector.
The shares of both Anthem and Cigna are not likely to change because the ruling was very much expected. The merger agreement dictates that Anthem pays $1.85 billion to Cigna as a break-up fee if Cigna tries its best to go ahead with the merger. In court, Anthem and Cigna had disagreements regarding the deal as Cigna was not willing to accept Anthem’s proposal to garner savings.