(Bloomberg) — Aetna Inc.’s fight to complete its purchase of Humana Inc. is now with a federal judge who must decide whether the combination of the two health insurers should be blocked because it risks raising consumers’ costs.
U.S. District Judge John D. Bates in Washington heard final arguments Friday from the companies and the Justice Department about the $37 billion deal, which the government says should be stopped. The judge said he would issue his ruling in a “timely manner” without specifying when.
The Humana merger and Anthem Inc.’s planned takeover of Cigna Corp., which is being challenged by the U.S. in a separate trial, would radically redraw the U.S. health insurance industry by combining four of the five largest insurers. The lawsuits, filed in July, are attempts to protect competition in an industry that President Barack Obama reshaped with the Affordable Care Act.
The Justice Department contends the Aetna deal will harm seniors on Medicare Advantage, the government-subsidized insurance program for the elderly, and individuals who buy insurance on ACA exchanges in three states: Florida, Georgia and Missouri. The department’s No. 3 official, Bill Baer, attended Friday’s session to watch the arguments.
“Protecting competition in these markets is critically important,” Justice Department lawyer Craig Conrath told the judge, who is deciding the case without a jury.
A central dispute in the case is whether Medicare Advantage is a distinct market or whether it also competes with original Medicare. The government says the two are different because many seniors prefer Medicare Advantage due to its lower overall costs and because they would see higher premiums if the merger proceeds.
The insurers counter that the two programs are alternatives to each other and that seniors can switch between them. If original Medicare is included in the market, it would undercut the government’s argument that Aetna will be able to raise prices after the merger.
During Friday’s arguments, Bates pressed both sides on the market definition and sounded skeptical of the companies’ position. He pointed to evidence that the insurers internally treat Medicare Advantage as separate.
“Anytime there is an an assessment” of the market by the companies, he said, “the market being assessed is Medicare Advantage.”
The judge also asked how the federal government’s role affects competition after the merger. Aetna and Humana argue the government would act as a check on the combined company because it pays claims and regulates the market.
The Center for Medicare & Medicaid Services, which administers Medicare, sets the reimbursement rates it pays providers. Those rates are then used as a benchmark for Medicare Advantage insurers, according to the companies. CMS also restricts the profits and margins earned by Medicare Advantage insurers, they said.
Bates’s questions about the role of the government underscored the difficulty in trying to interpret which way a judge might be leaning. He told Conrath, the Justice Department lawyer, that CMS places “quite a few constraints” on insurers, and then told a lawyer for Humana that competition between insurers does lead to plan improvements that aren’t regulated by CMS.
The case is U.S. v. Aetna Inc., 16-cv-01494, U.S. District Court, District of Columbia (Washington).
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