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Cigna demands Anthem pay $14.8 billion in lawsuit to terminate merger agreement

Aetna’s company headquarters in Hartford, Conn. (AP)

This story has been updated.

Health insurer Cigna announced Tuesday that it will unilaterally terminate its $54 billion merger agreement with Anthem after the deal was blocked by a federal judge. The news came shortly after insurance giants Aetna and Humana announced a mutual decision to abandon their $37 billion merger agreement earlier in the day. Humana also announced it will exit all of the Affordable Care Act exchanges where it sells individual insurance plans in 2018.

An Anthem spokeswoman said the company is still committed to closing its deal with Cigna, signaling the breakup could be messy. In a news release, Cigna announced it had filed a lawsuit in Delaware Chancery Court against Anthem seeking a judgment that the merger agreement had been terminated lawfully and seeking a $1.85 billion termination fee, along with an additional $13 billion in damages.

"These additional damages include the amount of premium that Cigna shareholders did not realize as a result of the failed merger process," the company said in its release. "The company believes strongly in the merits of its case and hopes that this matter is rapidly resolved."

Anthem spokeswoman Jill Becher said that Cigna's action was invalid and said the company "does not have a right to terminate the agreement."

"Anthem will continue to enforce its rights under the merger agreement," Becher wrote.

The dissolution of the Aetna-Humana deal is proceeding more smoothly. Last month, a federal judge upheld the Justice Department's decision to block that deal. Aetna will pay Humana a $1 billion breakup fee, the companies said, which will amount to about $630 million after taxes.

Humana also announced that it will exit all of the states where it offers individual insurance plans through the Affordable Care Act exchanges in 2018. In the exchanges, people without employer-based insurance can purchase health coverage, and the future of that business has become deeply uncertain as the Trump administration and Republicans have vowed to repeal the law, without saying when a replacement would occur. The company currently offers plans in 11 state exchanges, and it will continue to serve those customers through the end of the year. Humana spokesman Thomas Noland said there are about 150,000 people insured through the exchanges in 2017.

"Based on its initial analysis of data associated with the company’s healthcare exchange membership following the 2017 open enrollment period, Humana is seeing further signs of an unbalanced risk pool," the company said. A balanced risk pool contains both healthy and sick people buying insurance, and Humana's comments reflect a recurring critique of the exchanges -- in which insurers have reported losses because sick people are signing up for insurance, but not enough healthy people.

Aetna has already exited the majority of exchanges where it offered plans. Chief executive Mark T. Bertolini said in a statement that while it still believed the deal would be beneficial for consumers, the company was giving up on the transaction.

“We are disappointed to take this course of action after 19 months of planning, but both companies need to move forward with their respective strategies in order to continue to meet member expectations," Bertolini said.

Noland, a spokesman for Humana, said in an email that the company had always known that the deal might not go through.

"We have therefore planned carefully for it, and are fully prepared to continue to go forward as an independent company," Noland said.

The two mergers were first proposed in 2015 and could have reshaped the health insurance landscape in the United States by consolidating the four of the largest insurers into two companies. Both deals were blocked by the Justice Department on antitrust grounds, and two different federal judges upheld those decisions  in the last few weeks.

U.S. District Judge Amy Berman Jackson said the Anthem-Cigna deal would raise prices and eliminate competition between the two insurers for large national accounts -- employers buying health plans for more than 5,000 employees.

U.S. District Judge John D. Bates said the Aetna-Humana deal would have been anticompetitive and raised prices for consumers, specifically in the business of selling private Medicare plans in hundreds of counties and in the health insurance exchanges set up by the Affordable Care Act in three counties in Florida.

Judge says Aetna dropped out of some Obamacare markets to help win its merger fight

The formal conclusion of the Aetna-Humana deal did not come as a surprise; analysts had expected that Aetna and Humana would not appeal the decision.

Scott Fidel, an analyst at Credit Suisse, wrote in a research note that after a trip to Aetna last week, "we came away from the meeting viewing the likelihood of an appeal of Judge Bates' adverse ruling as extremely low, as management conceded that an appeal would likely face a very high hurdle to success." Ana Gupte, an analyst with Leerink Partners wrote the deal was viewed "as completely dead at this point" in a note last week.

Analysts have speculated that Humana, which is strong in the Medicare Advantage business of selling private Medicare plans, could now be targeted in a future deal, by either Anthem or Cigna.