The two-phase antitrust trial over potential Anthem-Cigna merger brought on by the U.S. Department of Justice and several states begins today. DOJ’s lawsuit, citing reduced competition and increased costs to consumers, was filed in July. Anthem said the combined company would allow them to actually maintain costs. The insurers added the merger would not provide them with a monopoly on pricing because regional insurers could rent networks and still compete with them on a national level.

If the Anthem-Cigna merger were to go through, as well as the pending merger between fellow insurance giants Aetna and Humana, five of the largest health insurance companies in the country will be reduced to just three. Not to mention, Anthem would become the largest U.S. payer, with its membership increasing from 38 million to 53 million beneficiaries, according to the National Association of Insurance Commissioners. Currently, the largest payer - United HealthGroup - has approximately 46 million beneficiaries.

Conflict from all sides

While shareholders and some states have approved the deal, it has also received some opposition from a wide-range of affected parties, notably the DOJ who is attempting to block the merger. In addition, the American Medical Association determined the deal would “quash competition in insurance markets.” And the American Hospital Association argued in a letter sent to Assistant U.S. Attorney General William Baer the finalized merger would likely result in less competition against Blue Cross Blue Shield plans and higher premiums.

A letter sent by seven Democratic senators this summer urged the DOJ to block the deal. One issue they raised was the merger that could adversely impact the nation’s economy with potential job cuts. “History shows that mergers can frequently cause job losses as the firms eliminate supposedly redundant positions and consolidate operations,” they wrote. “The fact that these mergers are occurring in a rapidly consolidation health insurance industry is particularly troubling as it raised the specter of higher health costs for small and medium sized businesses, making it more difficult to expand and hire more workers.”

The Anthem-Cigna merger has been under threat due to the regulatory process lasting longer than had been previously anticipated, with Cigna expressing doubts they will be able to meet the original contractual deadline of Jan. 31, 2017, though it may be extended to April 30. If the companies miss their deadline, Anthem could owe Cigna a breakup fee of $1.85 billion.

What to consider

The DOJ and Anthem-Cigna will be presenting several different arguments in support of or against the proposed deal during the court proceedings, which will conclude on Dec. 30. Because mergers can be expensive ventures, here are some of the financial issues to consider while following the trial:

1. Both companies increased their insurance rates for the 2017 plan year. Meanwhile, they have spent millions on the consideration process. Cigna, for example, settled half a dozen shareholder lawsuits in November 2015 that alleged the merger “shortchanged” investors.

2. The approval process alone has required Anthem to pay “approximately 55% cash equating to $103.40 per share, with the remaining approximately 45% of the price paid with Anthem stock,” according to the website the companies created to promote the deal.

3. The insurance companies have argued the merger will lead to $2 billion in savings. This was disputed by the first insurance regulator to oppose the merger - California Insurance Commissioner Dave Jones. "They refused to guarantee consumers and businesses will see the benefit of any potential savings in reduced prices," Jones said.

4. Larger companies have more negotiating power when dealing with reimbursements, David Balto, an antitrust attorney and former policy director of the Bureau of Competition at the Federal Trade Commission, maintains, adding “healthcare providers — the heart of the health care delivery system — will be faced with reduced reimbursement potentially leading to a reduction in services rendered” if the merger goes through.

5. The letter from the seven Democratic senators used the 1999 Aetna-Prudential merger as an example of how the kind of consolidation the merging companies are pursuing has historically led to higher prices for consumers. Aetna-Prudential premiums rose by 7% and costs to consumers by about $34 billion, they wrote. “The evidence overwhelmingly suggests that few if any cost savings by the merging firms through the exercise of market power will be passed on to consumers.”