• Health insurer said to weigh divestitures in some markets
  • Aetna said to argue any loss of competition can be fixed

Aetna Inc. is preparing to meet with top U.S. Justice Department officials on Friday as it seeks to win antitrust approval for its $37 billion takeover of rival Humana Inc., people familiar with the matter said.

The insurer plans to meet with antitrust officials, including the department’s No. 3, Bill Baer, one of the people said, a top-level gathering that signals the review is entering a final, make-or-break stage.

The meeting falls two weeks after a similar Justice Department session with Anthem Inc. and Cigna Corp., which are pursuing their own $48 billion merger. While department officials are concerned that the Anthem-Cigna tie-up may stifle competition, Aetna is arguing that its deal is different: It maintains that its overlap with Humana is small and any loss of competition is easily fixable, according to a person familiar with the insurer’s thinking who, like the others, asked not to be identified discussing a private matter.

Humana tumbled 6.7 percent to $167.94 and Aetna declined 1.6 percent to $118.30 at 12:59 p.m. in New York. MLex reported earlier on the meeting with Justice Department officials and said the antitrust officials are concerned the deal could harm competition.

For a Bloomberg Intelligence primer on Aetna, click here.

The two major health insurance deals, both struck about a year ago, would consolidate the five biggest publicly traded health insurers to three. The Justice Department has taken an aggressive stance on mergers to protect consumers, and Baer has signaled he’s taking a close look at the health insurance consolidation.

“We continue to cooperate with the Department of Justice on their review,” T.J. Crawford, an Aetna spokesman, said by phone Thursday. Seventeen out of 20 states where the companies are required to get approval from state regulators have signed off. In Missouri, where approval isn’t required but the state regulator has criticized the merger, Aetna continues to talk with officials, Crawford said.

Humana didn’t respond to requests for comment. Mark Abueg, a Justice Department spokesman, declined to comment.

One of regulators’ concerns in the Aetna-Humana deal is the market for private health plans for the elderly, known as Medicare Advantage. Humana’s big position in the fast-growing Medicare Advantage market is a key piece of its appeal to Aetna. Combined, Aetna and Humana would be the largest seller of those plans. Anthem and Cigna, by contrast, are big players in the market for employer-provided health plans.

Aetna’s Argument

Aetna is arguing that the Justice Department should take a broad view of what counts as competition in Medicare, according to the person, and that its Medicare Advantage plans don’t compete just with other private plans, but also with the U.S. government’s traditional Medicare option. One reason the products should be viewed as competitors in the same market is that there’s a lot of switching between them by consumers, the person said.

If antitrust officials agree, that could make it easier for Aetna to win antitrust approval of its deal or reduce the proportion of Aetna’s Medicare Advantage business that the company is forced to divest, because there would be a larger pool of competitors, even after the two combine.

Aetna has been working with advisers to prepare to sell assets worth several billion dollars if it is able to complete the deal with Humana, people familiar with the plans said last week.

Medicare Advantage

Almost one-third of the U.S.’s 56.6 million Medicare enrollees are in Medicare Advantage, rather than traditional Medicare, and the program is growing. Humana already has about 3.2 million Medicare Advantage clients in individual or group plans, and Aetna has 1.3 million members.

An analysis by the Kaiser Family Foundation, a non-profit health research and policy organization, last July found that a combined Aetna-Humana would have at least half of all Medicare Advantage enrollees in 10 states, and at least two-thirds in five states.

There are differences between the Medicare programs. Traditional Medicare can be used at almost any doctor or hospital, while Medicare Advantage plans rely on networks of health-care providers. In Medicare, the government typically pays 80 percent of the bill, with the patient covering the rest, while Advantage plans often use fixed co-payments and have out-of-pocket limits.

Investors have been skeptical that either deal will get done, and shares of both Humana and Cigna have been trading below what Aetna and Anthem have offered for the companies, partly because of the antitrust concerns.

Anthem’s Meeting

Anthem met about two weeks ago with the Justice Department in a bid to convince officials there to approve its deal. The antitrust division told Anthem that its purchase of Cigna threatens competition and probably can’t be fixed by selling parts of the businesses, people familiar with the matter said at the time. Still, the department indicated it was open to proposals from the firm to resolve the problems, according to the people.

In the Anthem-Cigna deal, regulators are said to be worried that the combination would reduce health insurance options for big employers, which often contract with insurers to administer benefits for workers.

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