The Effects of M&A in Medicare Advantage: A Case Study of Humana-Arcadian Management Services

Abstract Under U.S. antitrust policy, enforcers must identify mergers that are potentially harmful and propose remedies where necessary. I estimate the price, plan star rating, variety, share, and cost effects of Humana’s acquisition of Arcadian Management Services (AMS) – a Medicare Advantage HMO – and the U.S. Department of Justice’s subsequent divestiture order to provide insight with respect to antitrust enforcers’ success. I find that Humana experienced cost synergies following the merger and passed them through to customers via lower premiums and higher star ratings. AMS plans were cancelled almost immediately after they were acquired, which reduced product variety. These plans were of a lower quality and beneficiaries in these plans were highly inertial, so AMS variety reductions are unlikely to have caused consumer welfare harms.