How Aetna frittered away $1.8 billion on a merger destined to fail


Breakups are always emotional, more so when they’re expensive. Let’s calculate the financial carnage of Aetna’s break-up with Humana, a $34-billion merger deal that was shut down by a federal judge three weeks ago and ended by the two big insurance companies on Tuesday.

We figure that Aetna wasted roughly $1.8 billion, pre-tax, in pursuit of a merger that many experts said was so anti-competitive that it probably wouldn’t fly. This is a good portion of Aetna’s $2.3 billion in reported profit last year, on revenue of $63.2 billion. Of course, the costs are generally tax-deductible, so the U.S. taxpayer effectively is footing at least part of the bill—perhaps one-third, based on standard corporate tax rates.

Given that Aetna is a company that whined piteously about much smaller losses on its Affordable Care Act business — so much so that it cut loose more than 700,000 individual insurance customers to save money — it’s proper to ask what they were thinking.

We know what they say they were thinking: Aetna Chairman and Chief Executive Mark Bertolini mouthed the boilerplated platitudes in the announcement of the breakup. “We continue to believe that a combined company would create greater value for health care consumers through improved affordability and quality,” he said.

This is the usual unspecific pap employed to justify any big merger, especially in healthcare. If we’ve learned anything from experience, it’s that such mergers end up raising prices and reducing efficiencies and innovation. In other words, the opposite of what Bertolini claimed. That’s because lower prices and greater efficiencies and innovation stem from competition, which is exactly what mergers like the Aetna-Humana deal destroy.

The sophistry that surrounded the deal didn’t stop there. Last August, Aetna withdrew from 11 of the 15 states where it was offering individual insurance plans under the Affordable Care Act. The company claimed this was a business decision based on mounting losses in the market. But U.S. Judge John D. Bates, in his decision blocking the merger, called that deceitful: Aetna dropped much of that business, he found, to improve its litigation position in the government lawsuit over the merger. 

Bertolini also had asserted in public that Aetna’s discussions with the government about the merger and about its participation in the ACA exchanges were “separate conversations.” Internal company documents revealed that Aetna had explicitly tied them together, telling the Justice Department that if it tried to block the merger it would pull out of the exchanges. The department sued to block the merger, and a few weeks later Aetna pulled out of the exchanges.

Now that the merger deal is dead, let’s turn to the cost of the funeral. 

That brings the total cost of the Humana deal to roughly $1.8 billion. And all for nothing. Compare that to the $450 million Aetna said it incurred in pre-tax operating losses on the Obamacare exchanges in 2016. Those losses, the company maintains, are prompting it to reduce its ACA customer base from 965,000 at the end of last year to 240,000 or less. That’s a big consequence. But the $1.4 billion wasted on a CEO’s adventure — that’s just the cost of doing business. Bertolini’s gloss on the whole sorry episode, according to his company’s statement, is: “Both companies need to move forward.”  Aetna will do so, considerably poorer.

Keep up to date with Michael Hiltzik. Follow @hiltzikm on Twitter, see his Facebook page, or email

Return to Michael Hiltzik’s blog.


1:55 p.m.: This post has been updated to reflect that the Cigna-Anthem merger also has been called off.

2:42 p.m.: This post and its headline have been updated to reflect additional estimates of Aetna’s costs.