California Insurance Commissioner Dave Jones urged federal officials Thursday to block the merger of health insurance giants Anthem Inc. and Cigna Corp., declaring the $54-billion deal anti-competitive and harmful to consumers.
The state insurance department doesn't have the authority to thwart the merger on its own, but Jones' recommendation could carry considerable weight in Washington and hinder the companies' efforts to win federal antitrust approval.
Jones said the Anthem-Cigna merger would likely result in higher costs for consumers and businesses, fewer choices for coverage and a lower quality of medical care. He said the California health insurance market was already highly concentrated among four large companies, and this deal would only make matters worse.
“Bigger is not better for California consumers,” Jones said at a press conference in Sacramento. “I find that the Anthem and Cigna merger will harm California consumers, California's businesses and the California health insurance market.”
Anthem criticized Jones' decision and expressed confidence it would obtain the necessary government approval for the merger.
“We do not believe that the California Department of Insurance's opinion is based on the true merits of this transaction,” Anthem said in a statement Thursday. “We are confident that the highly complementary nature and limited overlap of our organizations that will benefit the complex and competitive health insurance markets will be reviewed on the facts by the Department of Justice and appropriate state authorities.”
The U.S. Department of Justice is investigating the merger, and federal officials could seek divestitures to reduce market power or try to block it entirely on antitrust grounds.
The deal also remains under review by a number of state agencies. California's other insurance regulator, the Department of Managed Health Care, is still examining it as are other states, such as Connecticut, which plays a critical role since Cigna is based there.
The decision in California was being watched closely across the country by consumer groups, medical providers and Wall Street investors. Jones said he was the first state insurance regulator to formally oppose the Anthem deal.
In addition to Anthem's proposed acquisition, another merger proposal between Aetna Inc. and Humana Inc. would consolidate the U.S. health insurance market from five major players down to three. Jones hasn't issued a decision yet on the Aetna-Humana tie-up.
The insurers contend that their mergers will enable them to eliminate unnecessary costs and deliver more affordable benefits to employers and consumers.
But Jones soundly rejected that argument from Anthem, saying its claims of $2 billion in savings were “vague” and “not credible.”
“There is simply no guarantee that these savings would benefit policyholders,” Jones said.
Jones also expressed concern about Anthem and Cigna gaining a significant share of the market for administering benefits of self-insured employers. He said the combined companies would have 61 percent of that employer market in California.
“This suggests Anthem would gain a monopoly share of the market,” Jones said.
Some big employers nationwide have raised similar worries about having fewer competitors to choose from.
Jones also cited Anthem's prior history of big rate hikes and said increased market power could trigger even more.
If the Anthem-Cigna deal is completed, the combined company would have 54 million members, making it the largest U.S. health insurer. It would generate $117 billion in annual revenue. Anthem would also become California's largest health insurer, topping HMO giant Kaiser Permanente.
The Anthem-Cigna merger has been rocky from the start. The two sides bickered publicly during negotiations last summer before finally reaching a deal.
Industry analysts have been growing more pessimistic about the chances the Anthem-Cigna deal will actually be consummated.
Ana Gupte, a health care analyst at Leerink Partners, said even without direct jurisdiction over the deal, the California insurance department's opposition spells further trouble for it.
“California is an important state for this merger, and we expect it to be material to the broader antitrust scrutiny,” Gupte said.
This story will be updated.