Congressional committee to hold hearings on health insurance industry consolidation, including Humana-Aetna deal

Source: Insider Louisville

The U.S. House Judiciary Committee plans to hold hearings in September to examine the proposed mergers of Humana and Aetna, as well as Anthem and Cigna. These deals will be examined as part of broader hearings exploring the state of competition within the health insurance industry.

The hearings follow on the news of the aforementioned buyouts: In early July, Humana agreed to be acquired by Aetna, in a deal currently valued at $34 billion. Just last week, Anthem announced it will acquire Cigna for over $48 billion.

If these deals go through, it would turn the five largest health insurance firms into three, consolidating a critical component of America’s health care industry.

In a press release announcing the hearings, House Judiciary Committee Chairman Bob Goodlatte (R-Va.) said that “without question the enactment of Obamacare has prompted increased consolidation in the health care industry.” He added that he is concerned the federal government is imposing its will on the health care industry, displacing the “will of the market.”

Meanwhile, committee members John Conyers Jr. (D-Mich.) and Henry C. “Hank” Johnson (D-Ga.) issued this joint statement in the release: “The health care industry has several potential competition issues, including the lack of competition among health insurance companies due to the unwarranted antitrust exemption they enjoy under McCarran-Ferguson. Additionally, consolidation in the health insurance market had been occurring for decades before passage of the Affordable Care Act, largely as the result of faulty laws and lax antitrust enforcement, resulting in potential harm to consumers due to further rapid consolidation among health insurers.”

The big caveat is whether regulators will approve two massive health insurance industry mergers. That regulators might have some problems with these deals has been reflected in how investors are acting toward all the stocks in these would-be deals, but more about that in a moment.

Though it’s common for an acquired firm to see its share prices rise upon news of a buyout, this has not happened in either the Humana/Aetna deal or the Anthem/Cigna deal. Humana’s stock is down 2.2 percent since the Aetna deal was announced, while markets are mostly flat. Aetna is down 12 percent in that time. Both Anthem and Cigna also have seen appreciable drops in their share prices over the past several weeks.

Writing for Forbes, John R. Graham, a senior fellow at the National Center for Policy Analysis, said there are multiple possible reasons why investors seem less-than-confident these deals will go through. One reason is that UnitedHealth Group — the largest health insurance firm — could make a bid for either Aetna or Anthem.

Graham said it’s more likely, however, that investors have concluded the most risk to these deals lies in the “regulatory and political realm,” meaning these deals could get scuttled by the government.

Certainly the government hasn’t been shy about flexing its anti-regulatory muscles. It recently intervened to block the deal whereby Electrolux would purchase GE Appliances. Regulators also recently blocked the Time Warner Cable-Comcast deal.