Anthem-Cigna merger breaks up; Humana to exit exchanges

NEW YORK — More turbulence has hit the health insurance sector with the apparent breakup of the Anthem-Cigna merger and Humana Inc.’s plan to pull out of the exchange market.

Anthem Inc. on Wednesday said it has filed a lawsuit in the Delaware Court of Chancery against Cigna Corp., which yesterday afternoon announced its aim to terminate the health insurers’ $48 billion merger deal. Anthem seeks a temporary restraining order to block Cigna from canceling the agreement.

Cigna’s move followed an announcement by Aetna Inc. and Humana on Tuesday morning that they were mutually ending their $37 billion merger. Both of the health insurance mega-mergers had been blocked by the U.S. District Court for the District of Columbia after the Department of Justice filed suit to stop the transactions, which it called anti-competitive and harmful to consumers.

Seen as a consequence of the Affordable Care Act (ACA), the health insurer mega-mergers came amid an overall consolidation in the health care arena — including pharmacy operators — and were expected to expedite access to medical and prescription drug benefits for millions of newly insured consumers. The mergers also would have better-positioned insurers to boost their Medicaid business, which expanded significantly with the enactment of the ACA.

With the federal court’s Feb. 8 ruling, Cigna said it believes the transaction with Anthem won’t gain regulatory approval and, as a result, it’s exercising its right to terminate the proposed merger agreement. To end the deal, Cigna has filed suit against Anthem in the Delaware Court of Chancery, seeking judgment that it has lawfully terminated the merger, that Anthem cannot extend the termination date, and that Anthem pay Cigna a $1.85 billion breakup fee plus additional damages of more than $13 billion. Cigna said the additional damages include the amount of premium that its shareholders didn’t realize because of “the failed merger process.”

“Cigna is disappointed in the outcome of this process. Cigna believed from the outset that the merger of the two companies had the potential to expand choice, improve affordability and quality and further accelerate value-based care,” Bloomfield, Conn.-based Cigna said in a statement. “Anthem contracted for and assumed full responsibility to lead the federal and state regulatory approval process, as well as the litigation strategy, under the merger agreement. Cigna fulfilled all of its contractual obligations and fully cooperated with Anthem throughout the approval process.”

Anthem, which last month extended the merger deadline with Cigna to April 30, claimed that Cigna doesn’t have a right to terminate the agreement because it didn’t live up to its obligations in the deal, causing it to founder.

“Cigna’s lawsuit and purported termination is the next step in Cigna’s campaign to sabotage the merger and to try to deflect attention from its repeated willful breaches of the merger agreement in support of such effort,” Anthem stated Wednesday. “Cigna’s obvious efforts to sabotage the merger have been recognized by both the district court and the national media,” Anthem added.

Indianapolis-based Anthem also reiterated its support for the merger and pointed to its efforts to appeal the federal court decision blocking the deal.

“Anthem believes that there is still sufficient time and a viable path forward potentially to complete the transaction that will save millions of Americans more than $2 billion in annual medical costs and deliver significant value to shareholders,” the company said. “In addition to filing this lawsuit, Anthem is pursuing an expedited appeal of the district court’s decision and is committed to completing this value-creating merger either through a successful appeal or through settlement with the new leadership at the Department of Justice.”

Meanwhile, Humana said late Tuesday that for the 2018 plan year it will no longer offer individual health insurance coverage via the federal and state exchanges. With the announcement, Humana joined other insurers exiting the exchange market, which has seen a lack of participation by younger, healthier consumers to offset the rising cost of claims by ACA plan members.

Human said it would continue to serve members with exchange plans through the rest of 2017 in the 11 states where it offers those products.

“Regarding the company’s individual commercial medical coverage, substantially all of which is offered on-exchange through the federal marketplaces, Humana has worked over the past several years to address market and programmatic challenges in order to keep coverage options available wherever it could offer a viable product. This has included pursuing business changes, such as modifying networks, restructuring product offerings, reducing the company’s geographic footprint and increasing premiums,” Humana stated. “All of these actions were taken with the expectation that the company’s individual commercial business would stabilize to the point where the company could continue to participate in the program.

“However, based on its initial analysis of data associated with the company’s health care exchange membership following the 2017 open enrollment period, Humana is seeing further signs of an unbalanced risk pool,” Humana explained. “Therefore, the company has decided that it cannot continue to offer this coverage for 2018.”

Louisville, Ky.-based Humana unveiled the move in announcing the termination of its merger deal with Aetna, which under the terms of the agreement is slated to pay Humana a $1 billion breakup fee.

“The health care industry is in a dynamic state, and the public is looking to companies like Humana to improve the cost of care and the consumer experience,” Humana president and chief executive officer Bruce Broussard commented. “As an independent company, we will continue to innovate and sharpen our focus on the local health care experience of all our members, especially seniors living with chronic conditions. Our strategy not only improves the value we bring to members, doctors and other health care professionals, but it also helps reduce costs and enhances the growth platform for both our health plans and our health care services businesses.”