Kevin McCoy

USA TODAY

This news story has been updated.

A federal judge Monday temporarily blocked the proposed $37 billion mega-merger between health insurance industry giants Aetna and Humana, ruling that the transaction would reduce competition for consumers.

Although the antitrust decision can be appealed, the outcome could have significant ramifications on how older Americans purchase government Medicare and private Medicare Advantage coverage in the rapidly changing U.S. healthcare market, as well as on the options available to individuals who don't have employer coverage.

The ruling marks a significant setback for the companies, which in July announced the proposed deal to create the largest seller of Medicare Advantage plans, covering more than 4.1 million seniors. Humana could get a $1 billion breakup fee from Aetna if the deal ultimately falls through.

"In this case, the government alleged 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," U.S. District Court Judge John Bates wrote in his 156-page ruling. "After a 13-day trial, and based on careful consideration of the law, evidence, and arguments, the court mostly agrees."

The judge based his decision enjoining the merger on evidence of "overwhelming market concentration figures" the merger would generate, plus findings of head-to-head competition between Aetna and Humana that would be eliminated if the deal were finalized.

The decision represents legal vindication for the Justice Department, which was joined by eight states and the District of Columbia in opposing Hartford, Conn.-based Aetna's proposed takeover of Louisville, Ky.-based Humana during the Obama administration. Eight states and the District of Columbia joined the federal action.

Aetna, Humana face federal antitrust lawyers in court

The companies contended the deal would not lessen competition. They also said their complementary strengths in technology and relationships with health care providers would benefit consumers. But, calling those arguments "unpersuasive," Bates's ruling concluded that federal regulation would be insufficient to keep the merged firms from raising prices or cutting benefits.

The judge also ruled that neither new health insurance competitors nor business divestitures the companies proposed to address antitrust concerns would replace competition eliminated by the merger.

Additionally, Bates concluded that Aetna tried to "leverage" the company's continued participation in federal Affordable Health Care Act exchanges in exchange "for favorable treatment from DOJ regarding the proposed merger."

The judge cited court records in which CEO Mark Bertolini and other Aetna officials suggested the company would withdraw from the exchanges if the Department of Justice sued to block the merger with Humana.

"This is persuasive evidence that when Aetna later withdrew from the 17 counties, it did not do so for business reasons, but instead to follow through on the threat that it made earlier," the judge said in his ruling. He added that internal company emails and other records show that Aetna "tried to conceal from discovery in this litigation the reasoning behind their recommendation to withdraw" from the exchanges.

"Today’s decision is a victory for American consumers — especially seniors and working families and individuals,” Deputy Assistant Attorney General Brent Snyder, the current head of the Justice Department’s Antitrust Division said in an official statement. "Millions of consumers have benefited from competition between Aetna and Humana, and will continue to benefit, because of today’s decision to block this merger."

In response, Aetna spokesman T.J. Crawford said "we're reviewing the opinion now and giving serious consideration to an appeal, after putting forward a compelling case" in the non-jury antitrust trial heard by Bates in December.

Humana did not immediately respond to a message seeking comment.

"I would not bet my money on the companies winning an appeal," said Thomas Lang, an antitrust law specialist and a partner in the Washington, D.C. office of the Haynes and Boone law firm. "Judge Bates wrote a thorough and well-reasoned opinion ... where he carefully examined the parties own internal ... documents and evidence, as well as carefully considering the econometric evidence offered by each side’s economic experts."

Aetna (AET) shares closed down more than 2.7% at $119.20. Shares of Humana (HUM) finished more than 2% higher at $205.02.

Antitrust trial over Anthem-Cigna merger begins

Another big antitrust case is still pending. That one is a $48 billion deal between Indianapolis-based Anthem and Connecticut-headquartered Cigna, two other members of the "Big 5" U.S. health insurance companies.

U.S. District Judge Amy Berman Jackson presided over last year's antitrust trial of Anthem's plan to acquire Cigna. She is expected to issue a ruling later this month.

The opposing legal positions in the Aetna-Humana case focused on markets and competition.

Obama administration takes aim at corporate mergers, inversions

Citing health insurance markets in 364 counties across 21 states, government lawyers argued that the companies' combined concentration in private Medicare Advantage would rise above presumptive legal levels. They also cited similar findings for public health care exchanges in 17 counties across three states.

Aetna and Humana contended that the government defined the markets too narrowly. Post-merger concentration would remain within presumptive legal limits if the relevant product market included both Medicare and Medicare Advantage benefits.

Additionally, the companies said potential entry of health insurance rivals, and the proposed sale of Medicare Advantage business to Molina Healthcare, an unrelated insurer, would make anti-competitive harm unlikely.

Siding with the government, Bates ruled that merger would likely lessen Medicare Advantage competition in all 364 complaint counties and in public health insurance exchanges in three Florida counties.

The judge also agreed with the government's contention that Aetna said it had withdrawn from competing in 17 counties during 2017 "specifically to evade judicial scrutiny of the merger."

Aetna-Humana Merger Decision

Follow USA TODAY reporter Kevin McCoy on Twitter: @kmccoynyc