Takeaways
- The failed Humana/Aetna deal and the consummated WellPoint/Anthem transaction indicate that state issues are more likely to affect timing than outcome.
- Missouri Department of Insurance opposition to the Humana/Aetna deal applied only to in-state business, while WellPoint/Anthem deal opposition from the California Department of Insurance resulted in a 130-day closing delay.
- Insurance regulators in Connecticut will hold a public hearing on Thursday, Oct. 4 to consider the Aetna/CVS transaction. Georgia will hold a hearing on Oct. 17, and New York - which has raised concerns about the deal - plans to hold a hearing on Oct. 18.
Based on previous health insurance transactions, any state opposition to the merger of CVS and Aetna is likely to have a maximum effect of delaying the deal’s closing date rather than preventing the acquisition.
On Thursday, Oct. 4, insurance regulators in Connecticut will hold a public hearing to consider the Aetna/CVS deal. New York’s Department of Financial Services has asked Connecticut for a careful review of the deal, as reported, and New York will hold its own hearing on Oct. 18. Meanwhile, regulators in Georgia recently
scheduled a hearing for Oct. 17.
Although DOJ approval of the deal is expected in the near term, state reviews could extend into November. The DOJ review is most important, and the majority of outstanding state approvals will likely fall in line after the agency’s approval, said a DC-based antitrust attorney.
However, there are some differences between the federal and state reviews. For instance, the state insurance commissioners apply public interest standards which are distinct from the DOJ’s competition-based analysis, noted Peter Carstensen, a professor at the University of Wisconsin Law School who previously worked at the DOJ.
For CVS and Aetna, there are two previous health insurance transactions which provide insights into the process for resolving state-level concerns: the attempted Humana/Aetna deal, announced in 2015; and the WellPoint/Anthem merger, announced in 2003.
Humana/Aetna
In the 2015-16 Humana and Aetna merger, which was
announced on July 3, 2015, Humana and Aetna did not disclose which state DOIs they had made their respective filings with in the definitive proxy
materials. Humana and Aetna did
file their required HSR notifications on July 16, 2015, and on August 19, 2015, respectively. Aetna re-filed its pre-merger notification with the DOJ and FTC.
On Sept. 18, 2015, Aetna
announced that each of the parties had received a second request from the DOJ in connection with the DOJ’s review of the transactions. Later, in its 2016
10-K, filed on Feb. 19, 2016, Aetna disclosed that it “had obtained ten of the twenty state change of control regulatory approvals necessary to close the transaction.”
As is well known, on July 21, 2016, the DOJ filed its
complaint in the U.S. District Court for the District of Columbia to enjoin the transaction, charging that the Humana acquisition would violate Section 7 of the Clayton Antitrust Act. The DOJ was joined in its complaint by attorneys general from Delaware, Washington, D.C., Florida, Georgia, Illinois, Iowa, Ohio, Pennsylvania and Virginia.
In May 2016, prior to the DOJ’s action, the Missouri Department of Insurance, or DOI, took its first steps toward rejecting the proposed merger by filing a preliminary motion opposing the transaction. The Missouri DOI alleged that the transaction would substantially lessen competition in the state in the individual, small group, and Medicare Advantage markets. The motion gave Aetna and Humana 30 days to offer remedies that would address the outlined harms.
Reports indicate that the Missouri DOI’s actions were a limited step; even if the regulator finalized its opposition, the overall merger could still proceed. Although the Missouri action could not necessarily derail the overall merger, other states where Aetna and Humana were large market players could undertake their own separate processes to investigate the competitive impacts of the merger on consumers. The reports also indicated that if other states used similar processes to oppose the merger, those states could consider preventing the companies from combining within the borders of their state. The states’ attorneys general could also launch their own antitrust investigations or work with the DOJ.
WellPoint/Anthem
In the 2003-04 merger between Anthem and WellPoint Health Networks, which was
announced on Oct. 27, 2003, Anthem and WellPoint
made appropriate filings and applications with insurance and health maintenance organization, or HMO, regulators in California, Delaware, Georgia, Illinois, Missouri, Oklahoma, Puerto Rico, Texas, Virginia, West Virginia and Wisconsin for their $16.4 billion merger. The parties also filed HSR pre-notifications in January 2004, and the HSR waiting period with respect to the transactions expired on Feb. 26, 2004.
By April 2004, Anthem’s president and CEO
disclosed in Anthem’s quarterly earnings call that the parties had obtained approvals from nine state insurance commissions, and that the parties “continue to make progress with the remaining 2 states.” The two states outstanding where insurance approvals were needed were California and Georgia. Eventually, on June 8, 2004, Anthem and WellPoint announced that they had been
granted approval from the commissioner of insurance in Georgia, leaving California as the only outstanding state insurance approval required.
On July 23, 2004, Anthem and WellPoint then
announced that they had received approval from the California Department of Managed Health Care, or DMHC, to complete their merger, but that the companies had also learned that the California insurance commissioner intended to deny their request for approval and reject $465 million in commitments to poor and disadvantaged Californians that WellPoint and Anthem negotiated with DMHC and DOI staffs. The commissioner stated that his denial was based upon his belief that the cost of the transaction will be borne by California policyholders, which Anthem and WellPoint characterized as a “blatant distortion of the facts.” Anthem and WellPoint noted that the California insurance review had lasted eight months up to that point, and that the commissioner’s position was appalling given the fact that the California DOI’s regulatory authority over WellPoint was “limited to less than four percent of the combined revenue of Anthem and WellPoint.”
In July and August 2004,
reports surfaced that the state DOIs in Georgia, Missouri and Texas were re-visiting their approvals in light of the California DOI rejection. The reports indicate that the Georgia DOI then rescinded its prior approval because of a Blue Cross pledge to invest $100 million in California’s rural and underserved communities raised several questions about WellPoint’s solvency and whether the company would have to raise insurance rates to pay for the investment. The reports also indicate that the Missouri DOI then questioned whether the pledge to California led to a request from a WellPoint Missouri subsidiary to pay a $10 million dividend to its parent, and that the Texas DOI indicated its willingness to revisit its prior approval in light of the lawsuit that ensued between Anthem and the California insurance commissioner.
Ultimately, on Nov. 9, 2004, Anthem and WellPoint
announced that they had received approval from the California DOI “after a several months-long, comprehensive review of the proposed merger.” The announcement noted that, in addition to the commitments previously made to the DMHC, Anthem and WellPoint had agreed to allocate an additional $100 million of high-quality portfolio investments through the “Investment in a Healthy California Program.” Anthem and WellPoint then noted that the companies were “now communicating with regulators in other states in order to complete the merger as quickly as possible.”
Anthem and WellPoint’s re-negotiations with the DOIs in Georgia, Missouri and Texas were successful and timely. On Nov. 30, 2004, the parties
announced that they had completed the merger. The entire deal’s completion timeline was 400 days, but the completion timeline was only 130 days from the date the parties announced the California DOI’s intended denial of their request for approval.
--Patrick Flavin and Ryan Lynch