Aetna-Humana Merger Clears Big Hurdle

The director of the California Department of Managed Health Care announced approval for Aetna Inc.’s (NYSE:AET) planned $37 billion takeover of Humana Inc. (NYSE:HUM) on Monday. In a statement, Director Shelley Rouillard said that the deal will help control healthcare costs and expand access to health care in the state. The decision brings the deal one step closer to closing.

The approval from the department does come with conditions. Aetna agreed to allow greater state oversight of its rates and to keep certain decision-making functions in California. The company has also committed to keeping premium increases at a minimum in the small group HMO business and to making about $50 million in community investments over the next three years.

The investments to be made would reportedly include $6 million for consumer assistance programs, $3 million for dental services for low-income or underserved communities, $1 million to expand telehealth services, and $16.5 million to support certain medical programs. The investments also include a $23 million expansion of its customer service center in Fresno, California.

The Aetna-Humana deal now needs only four more states’ approvals. Aetna spokesman T.J. Crawford said that the company continues to expect the transaction to close in the second half of 2016. National antitrust regulators are still reviewing the proposed deal, originally announced in July 2015. The merger also requires approval by the U.S. Department of Justice.

The proposed cash-and-stock deal would increase Aetna’s presence in the rapidly growing Medicare Advantage business. Medicare Advantage offers private versions of the federally funded healthcare program for the elderly and some people with disabilities. Humana deals mostly with Medicare.

Aetna is attempting to complete the deal with Humana at the same time that competitor Anthem Inc. is pursuing the purchase of Cigna Corp. However, some analysts believe that the Aetna-Humana deal has a greater likelihood of closing versus the Anthem-Cigna deal. Anthem and Cigna compete in similar markets while Aetna and Humana are rarely competitors in the same market.

The California Department of Managed Health Care has not yet decided whether it will approve the Anthem-Cigna deal. Just a few days ago, California Insurance Commissioner Dave Jones called for the Justice Department to block that deal, saying that the deal is “anti-competitive” and would hurt California consumers and businesses. Mr. Jones’ opinion will likely influence how the department decides. The Anthem-Cigna deal has been approved in 12 of a total 26 states necessary.

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