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By Bertha Coombs, CNBC

Aetna and rival Humana are terminating their merger, after their $34 billion deal was blocked by a federal court on antitrust grounds. Aetna will pay Humana a $1 billion break-up fee, in accordance with the agreement.

"While we continue to believe that a combined company would create greater value for health care consumers… the current environment makes it too challenging to continue pursuing the transaction," Mark Bertolini, Aetna chairman and CEO said in a statement. "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."

Humana said the termination fee would amount to $630 million, after tax.

Last month, U.S. District Judge John Bates blocked the merger, saying that the combination of the two insurers would reduce competition in the private Medicare Advantage market for seniors.

Aetna and Humana had struck an agreement to divest some of their Medicare Advantage business in overlapping markets to Molina Healthcare, in order to address concerns about competition. However, Bates found their proposed sales inadequate, because Molina did not have a strong track record in Medicare.

Aetna said it will also terminate the deal with Molina and will pay the applicable fees associated with that agreement. The company also announced that it will redeem more than $10 billion of Special Mandatory Redemption Notes on or about March 16th.