Wall Street appears to be cheering the Justice Department’s decision to sue to stop two major insurance mergers.
On Thursday, the Justice Department announced two lawsuits to end separate mergers between Anthem and Cigna and Humana and Aetna. Attorney General Loretta Lynch said that the mergers could reduce competition among insurance plans.
While the stocks of the four insurers initially tumbled on Tuesday due to the news of a potential lawsuit, they have since rebounded and closed on a high note on Friday.
For instance, Anthem’s stock actually rose the day after the Justice announcement. It closed on Friday at $142 a share, up 3 percent from Thursday. The stock was at $132 per share on Tuesday.
The reason is that investment analysts believe the companies could be better off operating separately, “with increased competition in the market and opportunities to acquire smaller managed care operations,” according to a report in the investment analysis publication The Street.
Each of the insurers’ stock prices has increased over the past six months, according to data from the analysis firm QuoteMedia.
Both Cigna and Humana’s stock prices increased by 8 percent from January, while Anthem rose by about 3.5 percent. Aetna had the biggest jump at 15 percent, QuoteMedia found.
One healthcare expert noted that the reason the insurers’ stocks didn’t dip too much was pessimism surrounding the mergers.
“There’s been some uncertainty for a while as to whether the mergers would get approved and move forward, so the markets had likely already anticipated that to some extent,” said Larry Levitt, senior vice president for the nonpartisan Kaiser Family Foundation.
Justice hasn’t been the only entity to express doubts about the mergers. The lawsuit objecting to the Anthem-Cigna deal was joined by 11 states and the District of Columbia, and eight states and the District joined in objecting to the Aetna-Humana deal.
Members of Congress also have asked Justice to intervene.
“Vigorous competition in any market yields the best products for consumers at the lowest price,” said Sen. Richard Blumenthal, D-Conn., in a letter to Justice last month.
He added that there is already a lot of consolidation in the insurance industry in recent years.
“After a number of mergers in recent years, the three largest insurers hold 80 percent or more of the market share in almost two-thirds of states,” he said.
California’s insurance commissioner also called on Justice to block the deals.
Attorney General Loretta Lynch said Thursday that the deals, estimated to be valued at $91 billion combined, would shrink the number of major insurers from five to three in the U.S. and harm competition for consumers. UnitedHealth would be the only other major insurer alongside the two merged companies.
“Our actions seek to preserve competition that keeps premiums down and drives insurers to collaborate with doctors and hospitals to provide better healthcare for all Americans,” she said.
One of the insurers, Cigna, appears to be getting cold feet about moving forward with the deal with Anthem.
“In light of the DOJ’s decision, we do not believe the transaction will close in 2016 and the earliest it could close is 2017, if at all,” the company said.
It added that Anthem was supposed to be handling the regulatory process for getting the deal approved and that Cigna was “evaluating its options consistent with its obligations under the agreement.”
The other three insurers remain committed to the mergers, with Anthem saying that the lawsuit was misguided.
“The DOJ’s action is based on a flawed analysis and misunderstanding of the dynamic, competitive and highly regulated healthcare landscape and is inconsistent with the way that the DOJ has reviewed past healthcare transactions,” the insurer noted.
