The Justice Department filed lawsuits Thursday to block two megadeals in the health insurance industry, saying the deals would harm competition across the country.
The planned deals — Anthem's (ANTM) proposed $54 billion acquisition of Cigna (CI) and Aetna's (AET) plan to buy Humana (HUM) for $37 billion — would reduce to three the number of large national health insurers.
"Competitive insurance markets are essential to providing Americans the affordable and high-quality healthcare they deserve," Attorney General Loretta E. Lynch said in a statement announcing the lawsuits.
Aetna and Anthem said they plan to challenge the suits. Anthem, the nation's second-largest health insurer, and largest member of the Blue Cross and Blue Shield Association, added it will "remain receptive to any efforts to reach a settlement with the DOJ" that would allow the deal to move forward.
Following the news, shares of Humana jumped 5.2 percent, Aetna rose 2.3 percent, Anthem gained 2.9 percent and Cigna rose 1.9 percent.
The DOJ said consolidation in the sector could hurt innovation and result in higher health-care costs.
"Today, the industry is dominated by five large insurers commonly referred to as 'the big five,'" the DOJ said in the suit against the Anthem-Cigna deal. "In a scramble to become even bigger, four of the big five now propose to merge. ... These mergers would reshape the industry, eliminating two innovative competitors — Cigna and Humana — at a time when the industry is experimenting with new ways to lower healthcare costs."
When the health insurers announced their deals a year ago, they had argued that the mergers were needed to help provide scale to negotiate better deals with hospital and physician networks In many local markets, provider consolidation has given hospitals much more negotiating power, the companies said.
In the suit against the Anthem-Cigna merger much of DOJ's focus was on its potential to reduce competition for consumers who receive commercial health insurance coverage from national employers throughout the U.S.
In a statement, Anthem said the lawsuit was "an unfortunate and misguided step backwards for access to affordable healthcare for America."
"The DOJ's action is based on a flawed analysis and misunderstanding of the dynamic, competitive and highly regulated healthcare landscape and is inconsistent with the way that the DOJ has reviewed past healthcare transactions," Anthem said.
In a separate release, Cigna, the nation's fourth-largest health insurer, said it was "evaluating its options consistent with its obligations under the agreement." The company added that the earliest a deal could close is 2017, if at all.
In a separate statement, Aetna and Humana jointly said they would "vigorously defend" their pending transaction.
One concern by U.S. regulators had regarding this deal was that there wouldn't be enough robust competition in Medicare in more than 350 counties in 21 states, which could affect more than 1.5 million customers.
Aetna and Humana refuted that saying, "Approximately 70 percent of Medicare beneficiaries elect to participate in traditional Medicare, administered by the government, and that option competes with MA plans administered by companies like Aetna and Humana."
Lynch said the DOJ's actions are aimed at preserving the "competition that keeps premiums down and drives insurers to collaborate with doctors and hospitals to provide better healthcare for all Americans."
Several states joined the DOJ in challenging both of the deals.
For Matt Cantor, a partner and attorney at Constantine Cannon, the Aetna-Humana deal has a better chance of surviving litigation than Anthem and Cigna's.
"I don't see Anthem, Cigna winning this case. I think that deal leads to substantial market concentration," he said. "I wouldn't be surprised if the party's abandoned the deals."
He added that if Cigna were to bow out during the litigation process, Anthem may not have to pay the $1.8 billion dollar break up fee. Another analyst echoed that sentiment.
And if Cigna were to leave early, that might give the Aetna and Humana deal more room to survive court because now only two insurers would be combining instead of four. Still, the Aetna-Humana deal could be defended as is, he said, if they are willing to make the necessary divestitures.
"If I were Aetna and Humana I would wait to see what happens," Cantor said.
After the DOJ's decision, the America's Health Insurance Plans responded by saying the announcement is a step in an ongoing process.
"Mergers among health plans can deliver significant benefits by combining complimentary areas of expertise to ensure consumers get the best value for their health-care dollars," said Clare Krusing, a spokeswoman for the trade group. "Notably, many insurance departments across the country have approved these mergers."
She added the most pressing competition issues today are the results of health-care provider mergers and the rising cost of pharmaceuticals.
Separately, Humana boosted its earnings forecasts for the second quarter and 2016, saying its Medicare Advantage and health-care services businesses outpaced expectations. However, its individual insurance business remains "challenging."
For the second quarter, Humana now expects to earn $2.28 a share, up from a prior forecast of a minimum of $2.15 a share, excluding charges.
For the full year, Humana projects adjusted earnings of $10.58 a share, up from a minimum of $9.25 a share it expected earlier. On a GAAP basis, the company expects earnings of $9.89, up from an earlier estimate of $8.56 a share.
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