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Humana announced Tuesday that it was terminating its merger agreement with its health-insurance counterpart Aetna after a federal judge blocked the deal.

Aetna will pay Humana a breakup fee of $1 billion, or $630 million excluding taxes, according to terms of the original agreement.

Both companies would have combined to form the second-largest health insurer in the US. However, the deal faced strong judicial scrutiny on grounds that it would reduce competition in their industry and make insurance more expensive.

In January, a federal judge blocked the deal on antitrust grounds, arguing that the new company would increase the already rising costs of healthcare coverage for consumers.

"We are disappointed to take this course of action after 19 months of planning, but both companies need to move forward with their respective strategies in order to continue to meet member expectations," said Aetna CEO Mark Bertolini in a statement.

Rival companies Anthem and Cigna are still working to close a $54 billion deal that would create the largest US health insurer based on the number of people covered. A federal judge also blocked the deal citing competition concerns. In a statement after the ruling, Anthem CEO Joseph Swedish said the company "will continue to work aggressively to complete the transaction."

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