Anthem prepping for hardball fight with feds over Cigna deal

Anthem Inc. has no intention of backing away quietly from its plan to buy rival Cigna Corp. in the face of federal opposition, and the company looks ready to play hardball.

The Indianapolis-based health insurer told analysts Wednesday that it is preparing to fight the government's move to block its $48 billion deal, and the company said its participation in the government's health insurance exchanges—a sore subject for the Obama administration that is trying to stop the acquisition—may be at stake.

The U.S. Department of Justice sued on July 21 to block both Anthem's deal and another proposed insurer combination, Aetna Inc.'s $34 billion purchase of Humana Inc. Federal regulators say the deals would reduce competition and raise prices on the exchanges and in other market segments, like plans offered to large employers.

The two acquisitions would reduce the nation's five largest insurers to three. The biggest is UnitedHealth Group.

Companies such as Electrolux and Halliburton have chosen to walk away from their proposed deals after facing recent Justice Department lawsuits. But both Anthem and Aetna are girding to fight.

Anthem CEO Joseph Swedish said Wednesday that his company plans to "run out the litigation as long as it takes" and expects a trial to begin around October.

He also said the insurer's deal for Cigna would help stabilize pricing in the volatile public exchanges created by the Affordable Care Act. That, he said, would enable his company "to continue its commitment to the public exchanges"—a statement industry experts see as a sign that Anthem could slash its exchange business if the government succeeds in scuttling the deal.

Anthem covers about 923,000 people through the state-based exchanges, which represents just a small slice of its overall business. It broke even last year on the still-new coverage, but company leaders said Wednesday they were preparing for a loss on that part of the business this year.

Insurers have faced a number of problems since the exchanges opened for enrollment in the fall of 2013. For example, they've been surprised by the size of the claims they have received as they've learned about the health of their new customers. And they say some of those patients have signed up for coverage, used their insurance, and then stopped paying premiums.

UnitedHealth has already cut its exchange participation to a handful of markets due to steep losses, and others, like Aetna, have also said they are struggling to make money on the exchanges.

Aside from the exchange coverage, Swedish also said Wednesday that the Cigna deal will help Anthem reap savings it can then pass on to its customers in the market for coverage sold through large employers.

"To be clear, our board and executive leadership team at Anthem is fully committed to challenging the (Justice Department) decision in court," Swedish told analysts in a call discussing the company's second-quarter financial results.

Anthem, which sells Blue Cross-Blue Shield coverage in key markets like California and New York, said Wednesday its second quarter profit was $780.6 million, on revenue of $21.27 billion. That compares with profit of $859.1 million and revenue of $19.76 billion in the same quarter last year. On a per-share basis, the company earned $3.33, after adjustments to remove the effect of one-time charges. Wall Street analysts expected adjusted earnings of $3.24 a share.

Anthem shares fell 2.7 percent Wednesday, to $133.86 each, after the results were announced.

Some Wall Street observers have questioned whether the insurers have the stomach for a protracted court fight. But Aetna also said last week that it plans to "vigorously defend" its deal in court.

"We are prepared for this, we have a strong case," Aetna Chairman and CEO Mark Bertolini said in a video posted on the insurer's website after federal regulators announced their lawsuit.