Aetna And Humana Call Off Merger After Court Decision

Enlarge this image toggle caption Jessica Hill/AP Jessica Hill/AP

Health insurance companies Aetna and Humana have called off their planned merger, citing a federal court ruling last month that blocked the deal.

"While we continue to believe that a combined company would create greater value for health care consumers through improved affordability and quality, the current environment makes it too challenging to continue pursuing the transaction," Aetna CEO Mark Bertolini said in a statement.

Aetna announced it would pay Humana a $1 billion fee for backing out of the agreement. Humana announced about $370 million of that would be paid as taxes.

In January, a federal judge ruled against Aetna's proposed acquisition of Humana in a victory for former President Obama's Justice Department, which sued Aetna last year.

As we reported:

"The suit alleged that the merger would hurt competition in the health care market, leading to higher prices for consumers and fewer services for Medicare patients. "U.S. District Judge John Bates found that to be the case, writing in his decision that, 'the merger of Aetna and Humana would be likely to substantially lessen competition in markets for individual Medicare Advantage plans and health insurance sold on the public exchanges' in 364 counties. "Medicare Advantage plans are privately run but reimbursed by Medicare."

In his decision, Judge Bates also spent considerable time discussing the motive behind Aetna's decision to withdraw its insurance plans from 17 counties where Aetna and Humana both sold plans on the public exchanges.

As NPR's Scott Hensley reported, a letter leaked to reporters last summer indicated Aetna CEO Mark Bertolini had tied his company's decisions about participating in the exchanges to the Justice Department's decision on the merger.

Bates rejected Aetna's claim that it had withdrawn its insurance plans for business reasons, writing that, "Aetna tried to leverage its participation in the exchanges for favorable treatment from DOJ regarding the proposed merger."

That leveraging clearly didn't work — the DOJ sued Aetna and, with Bates's ruling and today's announcement, decisively won.

The termination of the Aetna-Humana deal comes less than a week after another federal judge blocked a proposed merger between health insurance companies Anthem and Cigna.

On Feb. 8, U.S. District Judge Amy Berman Jackson ruled that the Justice Department's opposition to the Anthem-Cigna deal was well-founded, and that the merger would reduce competition in the health insurance market and raise prices, as we reported.

Anthem said it was appealing the decision, The Wall Street Journal reported.