Increased enrollment and higher premiums helped health insurer Anthem's first-quarter earnings beat expectations.
Anthem and Cigna have been increasing their lobbying efforts ahead of their planned merger. Reuters/Gus Ruelas

The U.S. Justice Department on Thursday filed a lawsuit in federal court to block a proposed merger between health insurance giants Anthem and Cigna. The move come after a surge of national opposition to the deal, which had been moving forward quietly for months.

“If allowed to proceed, this merger would enhance Anthem’s power to profit at the expense of both consumers and the doctors and hospitals providing their medical care,” said the Justice Department in a federal complaint. The department will also seek to block a separate merger between Aetna and Humana. “Anthem’s purchase of Cigna would eliminate it as a competitive threat and substantially lessen competition in numerous markets around the country.”

Upon news of the Justice Department move, the Connecticut Insurance Department -- which has been engulfed in an ethics probe over the deal -- announced it is suspending its review of the deal, and Connecticut's Attorney General George Jepsen announced his office is backing the federal government's suit. As the home of Cigna, Connecticut's state government had been leading the national multistate review of the deal.

Anthem pledged to fight the Justice Department move. In a statement Thursday morning, the company said it “is fully committed to challenging the DOJ’s decision in court but will remain receptive to any efforts to reach a settlement with the DOJ that will allow us to complete the transaction.”

The proposed merger — which would create the largest private health insurance company in American history — was originally announced in 2015, and the companies argued that the merger would create cost-saving efficiencies. Groups representing consumers, hospitals and physicians argued that the merger would reduce competition, thereby raising premiums and limiting medical care for up to 53 million consumers across the country. Despite the opposition, the transaction had received approval from 12 states, leading one top analyst to assert there was a 75 percent chance the deal would be approved.

But then in late spring, the deal hit turbulence: There were reports of internal management squabbles between the two companies, and then an International Business Times investigative series about the merger set off a firestorm in Connecticut, which has been leading the national multistate review of the transaction. The series — which prompted a state ethics probe — documented personal and familial ties between Cigna and Gov. Dannel Malloy’s lead regulator on the deal. It also documented how Cigna and Anthem had pumped significant campaign contributions into Malloy-linked political groups as his administration led the merger review.

As the controversy roiled Connecticut politics, the state’s senior senator, Richard Blumenthal — a powerful Democrat on the Senate Judiciary Committee — spearheaded a letter from seven federal lawmakers asking the Obama Justice Department to block the deal. With the department’s move on Thursday, that call appears to have been heeded.

“Anthem claims that consumers will benefit if it becomes the 800-pound gorilla at the bargaining table, forcing cost concessions from doctors and hospitals without regard to t impact those concessions would have on the quality of medical care,” said William Baer, the Assistant Attorney General for the Antitrust Division, at a Justice Department press conference Thursday. “The antitrust laws don’t work that way - you don’t get to buy a competitor, eliminate substantial competition just to increase your bargaining leverage with health care providers. Allowing just one company, Anthem, to dictate how much doctors get paid and employers get charged isn’t good for the doctors and the hospitals, its not good for the employees and it’ s certainly not good for hard working Americans who rely on their employers for health insurance.

Consumer groups immediately lauded the Justice Department lawsuits.

"We are immensely pleased by DOJ's decision," said David Balto, a former Justice Department and Federal Trade Commission official who leads a coalition of groups opposing the deal. "They recognized that when health insurers merge, consumers pay the price in higher premiums, less competition, and lower quality of care. The companies couldn't even provide convincing evidence of how the mergers would benefit consumers. We stand ready to support DOJ in its actions and to keep educating the public about the importance of competition."

A Cigna statement issued Thursday morning said the company “is currently evaluating its options consistent with its obligations under the agreement” it originally made with Anthem. The company also said that “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.”

Anthem struck a more aggressive posture, saying in its own statement: “Today’s action by the Department of Justice (DOJ) is an unfortunate and misguided step backwards for access to affordable healthcare for America. Access to health insurance saves lives, improves health and reduces the cost of care for all Americans. 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. Anthem has an unwavering commitment to enhancing access to affordable healthcare and the benefits and efficiencies from its merger with Cigna is one way that Anthem will continue its mission of improving consumer choice, quality and affordability.”

Reacting to the Justice Department's separate move to block the Aetna-Humana merger, Aetna CEO Mark Bertolini blasted out a defiant letter to his company's employees. In that email obtained by IBT, Bertolini suggested that the company will continue to pursue the merger in the face of federal government opposition.

"Aetna and Humana will defend themselves vigorously in the lawsuit, and we remain firm in our belief that bringing the two companies together is in the best interest of consumers, particularly seniors," wrote Bertolini, who Bloomberg News has said could make up to $131 million if the transaction goes through. "From the day we announced the transaction, we have said that a combined company would result in a broader choice of products, access to higher quality and more affordable care, and a better overall experience for consumers. We still believe that to be true. We look forward to sharing the facts in court, and we will continue to press forward. In the meantime, our integration planning continues."