State Insurance Commissioners possess broad powers to investigate, remedy, and block mergers. They regulate and examine health insurance markets on a daily basis, can proposed significant consumer protections within those markets, and have the closest relationship with consumers. Even if the Department of Justice approves a merger, state Insurance Commissioners can still analyze and file suit against an acquisition. There is an example of a past case where state antitrust authorities blocked an insurance merger to protect consumers even when the Department of Justice had approved it: the 2008 attempted merger of health insurers Highmark and Independence Blue Cross.
In April 2007, health insurance companies Highmark, which provided coverage to 4.6 million people and Independence Blue Cross, which provided coverage to 3.4 million people in and around Philadelphia, submitted their merger application to the Pennsylvania Department of Insurance. In May 2007 their application was reviewed and cleared by the Department of Justice. The Pennsylvania Insurance Department held hearings examining the mergers and their impact. The CEOs of both companies testified that the merger would have created substantial efficiencies they needed to compete with national publicly traded highly insurance companies that were entering their market.
The Department then conducted a 21-month review of the proposed merger and analyzed its potential impacts on competition in the health insurance market. Pennsylvania Insurance Commissioner Joel Ario laid out a condition that the companies divest either the Blue Cross or Blue Shield brand and work with the national Blues association to award the trademark to a qualified competitor. The executives of Highmark and Independence Blue Cross objected to this requirement. Doctors, hospitals, rival insurers, and consumer groups also expressed concerns about this merger. At the hearings experts testified against the acquisition and argued that it would lead to highly concentrated markets, higher premiums, and lower reimbursement for healthcare providers. The Pennsylvania State Senate’s Banking and Insurance Committee voted 10-4 to recommend that the Insurance Commissioner block the merger.
Commissioner Ario stated that his department was prepared to disapprove the transaction “because it would have lessened competition and disadvantage providers to the detriment of the insurance-buying public.” He argued that bigger companies were not always better ones, and this merger would have harmed consumers. Ario said that “Pennsylvania consumers already face one of the least competitive health insurance marketplaces in the country, and this consolidation would have made it worse, resulting in fewer choices for consumers and weaker provider networks for consumers who depend on those networks for access to quality health care.” Finally, in early 2009, Highmark and Independence Blue Cross abandoned their merger plan, admitting that the Pennsylvania Insurance Commissioner would not have approved the deal.
This provides a simple and straightforward lesson—the Pennsylvania Insurance Department conducted a thorough investigation of the merger, found that it would harm consumers and providers and lead to less competition, and refused to approve the merger. As a result, the companies ended their plans to combine. Effective state antitrust enforcement, even though the Department of Justice had already approved the merger, led to the merger’s defeat and benefited consumers. State Insurance Commissioners currently analyzing the Anthem-Cigna and Aetna-Humana mergers should follow what Pennsylvania did years ago: thoroughly examine the acquisition, determine its likely effects on consumers, healthcare providers, and insurance markets, and take all necessary steps to maintain competition and protect consumers, including blocking the merger if needed.