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California agency backs Aetna-Humana merger

Posted On: Jun. 20, 2016 12:00 AM CST

The California Department of Managed Health Care on Monday gave the green light to Aetna Inc.'s planned $37 billion takeover of Humana Inc.

The Aetna-Humana deal now needs only four more states' approvals and a thumbs up from the U.S. Department of Justice to go forth.

The California department approved the merger under several conditions intended to control health costs and expand access to health care in the state.

For example, Aetna agreed to more oversight for insurance rate reviews and to limiting health maintenance organization small group premium increases, according to the California department's Monday statement.

Aetna also agreed to invest about $50 million in state consumer assistance programs, dental services for low-income and underserved communities, telehealth services, accountable care organizations, and the expansion of its customer service center in Fresno, California, according to the statement.

“This is the latest positive step in the approval process, as we move closer to a combined company. We continue to expect the transaction to close in the second half of 2016,” an Aetna spokesman said Monday in an email.

The approval comes a few days after California Insurance Commissioner Dave Jones called for the Justice Department to block the proposed merger between insurers Anthem Inc. and Cigna Corp, labeling the deal “anti-competitive” and harmful to California consumers and businesses.

The California Department of Managed Health Care has not yet decided on whether it will approve the Anthem-Cigna deal, which has been approved in 12 of a total 26 states necessary, but Mr. Jones' opinion will likely influence how the department rules.

Several analysts say the Aetna-Humana deal has a greater likelihood of closing versus the Anthem-Cigna deal. For one, Anthem and Cigna compete in similar markets, meaning their combination could severely reduce competition in those markets. Aetna and Humana, however, rarely compete, as Humana deals mostly with Medicare.

Additionally, reports released in May by the Wall Street Journal show Anthem and Cigna executives aren't on the same page.

Leerink Partners L.L.C. analyst Ana Gupte maintains that the Aetna-Humana deal has an 80% chance of closing, while the Anthem-Cigna deal has a less than 50% chance.