By Diane Bartz
WASHINGTON (Reuters) - A U.S. Justice Department attorney told a federal judge on Monday that health insurer Aetna (NYSE:AET) Inc's planned acquisition of Humana Inc (NYSE:HUM) broke antitrust law by reducing competition in Medicare Advantage and Obamacare exchange businesses, kicking off a trial expected to last weeks.
The Justice Department filed a lawsuit in July asking the court to stop Aetna's $34 billion deal for Humana, arguing it would lead to higher prices for participants in Medicare and the individual insurance program created under the Affordable Care Act, popularly known as Obamacare.
Aetna argued on Monday that Medicare Advantage competes with the government's traditional Medicare program for elderly or disabled patients and said that it plans to stay out of the Obamacare exchanges in the near future.
Both those programs, as well as antitrust enforcement, could face changes under Republican President-elect Donald Trump.
Justice Department lawyer Craig Conrath told Judge John Bates of the U.S. District Court for the District of Columbia that traditional government-managed Medicare does not compete with Medicare Advantage, which is managed by insurance companies.
The Justice Department called as a witness Richard Frank, a former Department of Health and Human Services official now at Harvard Medical School. He told the court that seniors were generally reluctant to switch insurers; in a recent year some 78 percent stayed with their Medicare Advantage plan, 11 percent changed from one Medicare Advantage plan to another, 5 percent were involuntarily switched, 3 percent died and just 2 percent changed from Medicare Advantage to Medicare, he said.
The Justice Department's Conrath also told the judge that Aetna's plan to largely exit the Obamacare exchanges in 2017 should be disregarded because the company could re-enter the market as soon as 2018 if it chooses. Conrath said written communications showed that Aetna left Obamacare because of the antitrust lawsuit.
Aetna has denied that and said it would not return to the exchanges until 2019 at the earliest.
Shares in Humana fell 3.6 percent to $206.03 by midafternoon, while Aetna dropped 3.8 percent to $128.41, both on the New York Stock Exchange.
Aetna attorney John Majoras argued that traditional Medicare and Medicare Advantage did compete, citing a U.S. government website which describes the two programs. There could soon be more competition, he said, noting "entry has been common and it has been widespread."
Majoras also argued that the Obamacare exchanges were unprofitable and that that was the real reason the company planned to drop out of 11 of the 15 states where they are on the exchanges. "The result to Aetna has been mounting losses," said Majoras. "Humana's losses were actually even a bit worse."
The Justice Department filed another lawsuit in July to stop Anthem Inc's planned $45 billion purchase of Cigna Corp (NYSE:CI). That trial is underway in the same courthouse. The trials will be over before Trump's inauguration on Jan. 20. He has pledged to repeal and replace Obamacare and has said Medicare should be modernized.
Humana is the second largest Medicare Advantage insurer while Aetna is the fourth, and the two compete in more than 600 counties, the government said in its complaint.