Oh, the irony.
Health insurers Aetna and Humana have officially terminated their merger plans, and they did it on Valentine’s Day. What’s more, Aetna has to pony up a cool $1 billion to do so.
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Aetna and Humana also said they have terminated separate agreements to sell some of their Medicare Advantage business to Molina Healthcare for $117 million. That plan, announced in August 2016, was contingent on the closing of the big merger.
“We find it ironic that we signed the deal with Aetna on Independence Day weekend and that the deal broke on Valentine’s Day,” Humana President and CEO Bruce Broussard said during a conference call with investors Tuesday afternoon.
Humana also announced that it would exit all individual commercial markets at the beginning of 2018. The company plans on diving deeper into chronic care management, particularly the lucrative Medicare Advantage segment.
“We are beginning to see signs of an unbalanced risk pool,” Broussard said of the individual market. He based that assessment on results of the 2017 open enrollment period.
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The split became inevitable on Jan. 23, when a federal judge in Washington, D.C., blocked Aetna’s $37 billion purchase of its rival on antitrust grounds. But the two companies made it official on Tuesday.
Under terms of the merger agreement struck July 2, 2015, Aetna would have to pay a $1 billion breakup fee should the deal not be consummated by Feb. 15, 2017. It just so happened that the companies decided to mess with Cupid by calling off their union one day early.
Lousville, Kentucky-based Humana said it would receive approximately $650 million after taxes.
The two companies had every intention to enter into this union, but U.S. District Court Judge John D. Bates saw a motive other than true love. He ruled that the deal would “substantially” reduce competition in the Medicare Advantage market.
In particular, Bates lashed out at Aetna leadership, including CEO Mark Bertolini, for threatening to exit public health insurance exchanges in 11 states if the Obama administration didn’t approve the merger. Hartford, Connecticut-based Aetna said it decided to quit the exchanges in 2017 purely for financial reasons, but Bates did not buy that argument.
Bates also shot down the argument that the merged company would create operating efficiencies that could lower health insurance premiums.
“While we continue to believe that a combined company would create greater value for healthcare consumers through improved affordability and quality, the current environment makes it too challenging to continue pursuing the transaction,” Bertolini said in a press release.
“We are disappointed to take this course of action after 19 months of planning, but both companies need to move forward with their respective strategies in order to continue to meet member expectations,” Bertolini continued. “Our mutual respect for our companies’ capabilities has grown throughout this process, and we remain committed to a shared goal of helping drive the shift to a consumer-centric healthcare system.”
Broussard said Tuesday that the still-independent Humana would pursue other acquisition opportunities, particularly in IT.
Last week, another judge on the same court blocked a $54 billion merger between Anthem and Cigna. Together, the two proposed mega-deals would have trimmed the number of large, national private health insurers from five to three.
Anthem, which has until April 30 to complete its takeover of Cigna to avoid a $1.85 billion termination fee, has vowed to appeal.
Photo: Flickr user siti fatimah
