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July 31, 2015 By Jay Baldauf

Anthem and Cigna have entered into a definitive agreement whereby Anthem will acquire all outstanding shares of Cigna in a cash and stock transaction. The Anthem board of directors will be expanded to 14 members. David Cordani and four independent directors from Cigna’s current board of directors will join the nine

Joseph Swedish, president and CEO of Anthem said, “The Cigna team has built a set of capabilities that greatly complement our own offerings and the combined company will have a competitive presence across commercial, government, international and specialty segments. “The complementary nature of our businesses will allow us to leverage the deep global health care knowledge, local market talent, and expertise of both organizations to ensure that consumers have access to affordable and personalized solutions across diverse life and health stages and position us for sustained success,” said David M. Cordani, president and CEO of Cigna. The transaction is expected to close in the second half of 2016, pending state regulatory approvals. Anthem is confident in its ability to obtain all necessary regulatory and other approvals.

Insurance Commissioner Dave Jones said, “California’s health insurance market already suffers from consolidation with the four largest health insurers in the individual market controlling more than 85% of the market. Further consolidation will result in even less competition among health insurers and will leave consumers and employers with fewer choices and the potential for greater premium increases. Studies of prior mergers of health insurers found that health insurance prices increased as a result of mergers. “Health insurers are enjoying record share values and profits, which are paid for by consumers and employers. There is no requirement that any savings from these mergers be passed along to consumers or employers. In California, there is no authority to reject excessive health insurance rate increases, unlike 35 other states. We will review the mergers based on what is best for California consumers and employers. We will also work closely with other state and federal regulators,” he added.

Steven Stack, MD, president of the American Medical Association said, “The lack of a competitive health insurance market allows the few remaining companies to exploit their market power, dictate premium increases, and pursue corporate policies that are contrary to patient interests. Health insurers have been unable to demonstrate that mergers create efficiency and lower health insurance premiums…The U.S. Department of Justice has recognized that patient interests can be harmed when a big insurer has a stranglehold on a local market. Federal and state regulators must take a hard look at proposed health insurer mergers. Antitrust laws that prohibit harmful mergers must be enforced and anti-competitive conduct by insurers must be stopped.” “Based on federal guidelines, the proposed Anthem-Cigna merger would be presumed to be anticompetitive in the commercial, combined (HMO+PPO+POS) markets in nine of the 14 states (NH, ME, IN, CT, VA, CO, GA, NV, KY) in which Anthem is licensed to provide coverage,” he added.

An AMA study of the 2008 merger involving UnitedHealth Group and Sierra Health Services found that premiums increased after the merger by almost 14% compared to a control group. The study reveals a serious decline in competition among health insurers with nearly three out of four metropolitan areas rated as highly concentrated. In fact, 41% of metropolitan areas had a single health insurer with a commercial market share of 50% or more.

Reactions to Supreme Court Subsidy Ruling

The U.S. Supreme Court ruled that nationwide subsidies called for in the Affordable Care Act are legal. The following are reactions from stakeholders:

Patrick Burns, president of the California Association of Health Underwriters: The Supreme Court got it right. California has a state-based exchange (Covered California), so nothing will really change here, but the clarification was very important to residents in the 34 states that utilize the federally facilitated health insurance marketplace in some form…Our hope is that state and federal policymakers will now turn their attention on efforts to truly reduce the cost of providing health care, something that the ACA has not fully addressed. Lawmakers and regulators need to look at and improve the portions of our health care system that work well and keep a variety of health insurance product options available to all. The employer-based system has reliably and effectively delivered quality health coverage to generations of Americans. And we as a nation need to work to preserve it.
Covered California Executive Director Peter V. Lee: Although Covered California enrollees were not at risk of losing their subsidies as a result of the Supreme Court decision, a ruling invalidating subsidies offered through the federal health exchange could have resulted in changes to the federal law, which could have affected California…The subsidies have helped millions of Americans, including individuals I have met whose lives were saved as a result of the care they received. With the support of federal subsidies, the majority of consumers enrolled with Covered California pay less than $150 per month for their premiums, with many tens of thousands of consumers paying less than $10 per month for coverage.
California HealthCare Foundation president and CEO Dr. Sandra Hernández: We hope that this ruling will hasten the conclusion of the seemingly endless political debate about the law. After the ACA was enacted in 2010, California government and industry leaders had the foresight to swiftly establish Covered California. That was a wise decision not only because the exchange now has 1.3 million enrollees, but also because the state exchange insulated Californians from the financial and health risks posed by this legal challenge.
The American Academy of Actuaries Academy Senior Health Fellow Cori Uccello: The…ruling upholding…preserved an integral component of the Affordable Care Act and averted significant disruptions to the individual health insurance market. In the loss-of-subsidy scenario, adverse selection would have been a serious concern, as relatively higher-cost individuals would have retained coverage, increasing average costs and premiums. While the legal challenge to subsidies has been decided, the Academy urges policymakers to assess any proposals that may be offered to modify or replace the ACA against these important market reform principles.

Reactions to Anthem/Cigna Merger

Reactions to Supreme Court Subsidy Ruling