This is a summary version of an article authored by James Burns that was originally published in the October 2012 edition of Managed Healthcare Executive. A link to the full article is set forth below.
On July 9, WellPoint and Amerigroup, two prominent health insurers, announced that they intended to merge in a deal reportedly valued at approximately $5 billion dollars. If consummated, the transaction would be one of the largest mergers of the year, and the first of what many predict will be a series of combinations and consolidations in the health insurance industry going forward as the industry reacts and adapts to the changes mandated by the Patient Protection and Affordable Care Act. With this merger, and predictions of more to come, it is time to review five core antitrust principles that come into play as part of any health insurance merger.
1. First, and most significantly, health insurance mergers are not exempted from federal antitrust review by the McCarran-Ferguson Act, 15 U.S.C. 1012 et seq. (the insurance industry’s antitrust exemption). Any doubt about this was put to rest on August 22, when Amerigroup publicly acknowledged that it had received a “Second Request” for additional information from the Department of Justice’s Antitrust Division.
2. Second, the Antitrust Division’s action provides a basis to refute claims by some healthcare providers that, even if McCarran-Ferguson does not preclude a review by federal regulators, health insurers have typically received a “free pass” with respect to their proposed mergers.
3. Third, the Antitrust Division’s review of health insurance mergers can be expected to be both detailed and thorough. Reflecting a careful market by market examination of the proposed transaction, the Antitrust Division’s concerns have reportedly been narrowed to a single state, notwithstanding that the combined company would operate in nineteen states.
4. Fourth, because concerns about a single market can result in Antitrust Division action, many merging health insurers in the past have chosen to sell off assets or operations through divestitures to clear potential regulator concerns and obtain approval for larger transactions.
5. Fifth, and of specific concern to insurance industry transactions, is the recognition that gaining federal antitrust approval is often not the only antitrust hurdle that merging health insurers face before closing. State regulators (both State Attorneys General and State Insurance Commissioners) have, on occasion, also served as potential roadblocks to merging health insurers’ plans.
Finally, it is important to remember that the Antitrust Division’s issuance of a Second Request is not a determination at this point that the Wellpoint/Amerigroup transaction does pose competitive risk, of course; rather, it is only a decision that additional information is needed from the parties in order for the Antitrust Division to examine the potential competitive issues more closely (albeit coupled with the requirement that the parties delay closing on their deal pending the completion of the Division’s review).