Calif. Regulator Approves Aetna, Humana Merger

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California's health plan regulator approved Aetna Inc.'s acquisition of Humana Inc. with conditions that boost scrutiny of proposed premium rate increases and require that the merged plan keep small group rate increases to a minimum.

The Department of Managed Health Care negotiated commitments from Aetna to ensure the merged company would comply with state rules for consumer protection and financial solvency, Director Shelley Rouillard said in a June 20 statement.

“The Department’s conditions on this merger will help control health care costs, increase access to care and improve quality of care,” Rouillard said. “Aetna also has committed to help improve California’s health care infrastructure, and invest in programs that will serve the vulnerable populations enrolled in these plans.”

The California regulatory approval includes first-ever terms that restrict the health plan's ability to increase premiums, and comes as Aetna and Humana await ultimate approval from the U.S. Department of Justice for the merger.

An Aetna spokeswoman told Bloomberg BNA June 20 the company expects the transaction to be final in the second half of 2016.

“We are committed to making strategic investments to address deficiencies in the health care delivery system, make health care more cost effective, and improve the health and wellbeing of Aetna members and their beneficiaries throughout the state,” Aetna spokeswoman Anjanette Coplin said in an e-mailed statement.

Increased Leverage

The DMHC's conditions for approval are outlined in undertakings signed by Aetna and Humana officials June 17.

Although the DMHC doesn't have the authority to block premium rate increases, its conditions on the merger boost its leverage if Aetna proposes increases that the regulators consider unreasonable, Anthony Wright, executive director of consumer group Health Access, told Bloomberg BNA June 20.

“It's not a complete ban on unjustifiable rate increases, but it is greater scrutiny,” he said.

For two years following the completed merger, Aetna will be required to meet with DMHC officials 30 days before filing its quarterly rates and provide more justification for increases that are at least 2 percent higher than forecast. If the company goes forward with a rate increase that the DMHC deems unreasonable, it won't attempt to increase rates for the following quarter.

Wright said the restrictions and scrutiny on rate increases are a first for the DMHC, but many of the other terms of the approval are similar to those in other merger approvals from the department.

In addition to limiting premium rate increases for small groups, Aetna will invest $49.5 million in five areas including telehealth, consumer assistance for seniors and the disabled, dental services for low-income enrollees and an expanded service center in Fresno.

Concerns About Merger

In a written statement to Bloomberg BNA June 20, the California Medical Association repeated concerns it has expressed to the DMHC in recent months about the merger.

“CMA has long been concerned with the consolidation of health plans, health insurers and the loss of competition in the health insurance market, and we have been active in expressing those concerns in regard to the Aetna-Humana merger because we believe that consolidation could not only limit consumers’ choice of physicians, but also result in a reduction of resources, competition and physician collaboration,” the CMA said.

Consumer Watchdog, a consumer advocacy group, criticized the DMHC's approval by saying it sanctions unjustified rate increases without requiring the new health plan to pass on projected savings to consumers.

“Instead of barring excessive rate increases, the DMHC’s agreement with Aetna will allow the company to impose two unjustified rate increases on small businesses per year,” CW Executive Director Carmen Balber said in a June 20 news release.

Approval in Other States

Fifteen other states have already approved the merger, although Missouri's top insurance regulator provisionally rejected it in May based on concern that it would reduce competition (102 HCDR, 5/26/16).

Aetna has about 1.4 million members in California, which represents 7 percent of the market, Coplin said. Humana has about 62,000 members in California through its Medicare Advantage business.

To contact the reporter on this story: Laura Mahoney in Sacramento, Calif., at [email protected]

To contact the editor responsible for this story: Kendra Casey Plank at [email protected]

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