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Dear Connecticut: CVS Can't Afford Aetna. Sincerely, New York

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(Related: Major Health Industry Deals May Be Moving Closer to Approval)

The top insurance regulator in New York state has told her counterpart in Connecticut that letting CVS Corp. acquire Aetna Inc. could hurt Aetna policyholders.

Maria Vullo, the superintendent of the New York State Department of Financial Services, made that point in a letter she sent last week to Katharine Wade, the Connecticut insurance commissioner.

CVS has taken on a considerable amount of debt to acquire Aetna, Vullo writes.

“The considerable pressure to repay debt would cause the resulting company to repay its substantial obligation before investing in other pro-market and pro-consumer measures,” Vullo writes.

The pressure could also lead to premium increases for Aetna policyholders, Vullo writes.

Vullo cites predictions from S&P that completing the deal would weaken CVS’s financial profile as evidence for the idea that the deal could hurt Aetna’s operations.

What Is CVS Trying to Do?

CVS — a Woonsocket, Rhode Island-based drugstore company and pharmacy benefit manager (PBM) — is trying to acquire Aetna, which is based in Hartford, through a deal with an estimated value of $68 billion. CVS borrowed $40 billion to finance the deal in March, by issuing investment-grade bonds.

CVS has told Connecticut regulators that it should be able to cut its ratio of net debt to EBITDA to about 3 times EBITDA in 2021, from 4.5 times EBITDA today, if it keeps Aetna’s existing financial policies in place.


“EBITDA” is an acronym that stands for “earnings before interest, tax, depreciation and amortization.”

More on this topic

EBITDA is a standardized measure of operating income.

What Does Maria Vullo Have to Do With This?

Wade has jurisdiction over any efforts by Aetna to transfer control over its Connecticut-domiciled insurance operations to another party.

Vullo’s department has jurisdiction over control over an Aetna subsidiary based in New York state, Aetna Health Insurance Company of New York, and several other Aetna units that do business in New York state.

What Else Is Maria Vullo Saying?

Vullo contends else where in her letter that:

  • CVS should provide specific commitments for passing on deal benefits to Medicare Part D drug plan enrollees, not just claims that the deal will lead to operational synergies.
  • CVS could create drug benefits rules for Aetna plan members that would increase CVS pharmacies’ market share and lead to higher net drug prices for consumers.
  • CVS might help policyholders by setting up more clinics inside its stores, but that could create unfair competition for other types of medical providers and hospitals, and, possibly, hurt overall health care system employment.
  • CVS could use enrollee data from insurers other than Aetna to help Aetna. If the deal goes through, CVS has to agree to safeguards to keep that from happening, Vullo says.

What Are CVS and Aetna Doing About Regulators’ Market Share Concerns?

CVS and Aetna announced Wednesday that Aetna has arranged for WellCare Health Plans Inc., a large player in the Medicare plan market, to acquire Aetna’s entire stand-alone Medicare Part D prescription drug plan business, effective Dec. 31, if CVS has completed the Aetna deal by then.

CVS said it and Aetna still hope to complete the deal”early in the fourth quarter of 2018.” The fourth quarter starts Monday.


A copy of Vullo’s letter is available here.

The Connecticut Insurance Department docket for the CVS-Aetna deal is available here.

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