Justice Department to Challenge Two Health-Insurance Mergers--2nd Update

The U.S. government is close to challenging two proposed mergers between four of the nation's largest health-insurance companies, according to people familiar with the matter, in what would represent strong pushback against consolidation in the industry.

The Justice Department as soon as this week could challenge Anthem Inc.'s proposed acquisition of Cigna Corp. and Aetna Inc.'s planned combination with Humana Inc. Antitrust lawsuits against the planned mergers would be the culmination of concerns the Justice Department has had about the deals from the outset. During a yearlong review of the mergers, the department's skepticism hasn't subsided, people familiar with the matter said.

The Wall Street Journal previously reported the mergers were in trouble at the Justice Department, with antitrust enforcers worried the deals would reduce competition and harm consumers.

The companies, however, have been given the chance to try to persuade the department that any antitrust problems raised by the deals could be addressed by shedding assets to competitors. The department has been skeptical that asset sales, or divestitures, would adequately preserve the current level of competition.

The government's firm stance is the latest sign that antitrust enforcers, particularly in the late stages of the Obama administration, are resisting large and potentially transformative mergers in industries that already were becoming more concentrated.

"Especially in this environment, we cannot afford to let up our efforts, " Bill Baer, the acting associate attorney general, said in a June speech. During a Senate hearing in March, Mr. Baer called the insurance deals a "game-changer" that required close scrutiny "to make sure we aren't making a mistake in which shareholders benefit and the consumers pay the cost."

Bloomberg News first reported Tuesday that the department was poised to file lawsuits this week or the next.

A Justice Department spokesman declined to comment.

An Aetna spokesman said the company "doesn't comment on rumors and speculation, but we are steadfast in our belief that this deal is good for consumers and the health-care system as a whole."

Cigna and Anthem declined to comment. A Humana spokesman didn't respond to a request for comment.

The deals were bold moves to reshape the top of the health-insurance business, collapsing the top five companies in the industry to three, each with annual revenue of more than $100 billion. Both combinations were unveiled last July, the culmination of months of merger frenzy as the industry's biggest players engaged in a chess-like series of moves and countermoves.

All of the merging companies argued they could achieve cost savings and better results for customers with the scale that their combinations would bring, amid changes and challenges tied to the Affordable Care Act. They were also seeking to get closer to the size and heft of the industry's largest player, UnitedHealth Group Inc.

The two deals raised different antitrust concerns, however, and legal challenges are likely to focus on distinct issues. Analysts believe that if the Justice Department does challenge both deals, the insurers are likely to fight in court.

Anthem has previously told investors that it is likely to do so, according to people with knowledge of the matter, and Aetna has prepared a package of divestitures that it has argued would remedy any competitive concerns.

The Justice Department can't unilaterally block the deals. It must convince a judge to do so.

The $48 billion Anthem-Cigna acquisition would create the largest health insurer by enrollment, with more than 54 million members, and $117 billion in annual revenue.

Justice Department officials have privately signaled major concern about how the deal would affect the national employer market, where the combination would shrink the number of competitors to three from four. Other worries included the merger's impact on individual insurance plans -- the coverage sold in the exchanges that are at the heart of the Obama administration's signature health law -- and on health-care providers, where a combined insurer might have greater leverage in reimbursement negotiations.

Anthem has argued the national-employer market is far more complex, with sophisticated customers who often divvy up their business. It has said the individual markets would remain competitive, and that it wished to cooperate with health-care providers.

With Aetna's $34 billion proposed acquisition of Humana, much of the antitrust focus has been on private Medicare plans, Humana's main business. An Aetna-Humana combination would become the biggest seller of Medicare Advantage plans and have overall revenue of about $115 billion based on 2015 totals.

Humana has a Medicare Advantage membership of about 3.19 million, or 17% of the national market, and Aetna has around 1.38 million, or 7%, according to Wells Fargo analysts. Among the areas of greatest overlap are regions in Ohio, Florida and Missouri. Missouri's insurance regulator has said the companies' combined individual Medicare Advantage market share was more than 50% statewide and above 90% in some counties.

Aetna has floated a package of Medicare Advantage assets, attracting bids from major insurers. It also has said the full competitive landscape for Medicare plans includes traditional Medicare provided by the government.

If the deals do end up falling apart, all four companies will remain considerably smaller than UnitedHealth.

Write to Brent Kendall at brent.kendall@wsj.com and Anna Wilde Mathews at anna.mathews@wsj.com