#7 The Year of Mergers and Acquisitions

Health Care Mergers & Aquisitions

With 30 million Americans entering the health insurance market, Obama has touted that his healthcare reform bill will increase competition amongst carriers. As the many provisions of the bill have been released, the insurance industry has quickly reacted with a series of mergers and acquisitions. Across the country, health plans have looked for ways to find economies of scale, increase market share, and prepare for a post-reform marketplace.

As a result, major health care giants representing $115 billion in market capitalization completed a string of acquisitions in late 2012, actually decreasing the number of competitors. Eyebrows have been raised at the idea that health insurance companies might follow suit of big banks and eventually become too big to fail.

July 2012 – WellPoint, the nation’s largest health insurance carrier in terms of membership, agreed to purchase Amerigroup for $4.9 billion in cash as it expanded its Medicaid footprint to over 4.5 million members. The transaction made WellPoint the largest private Medicaid insurer in the country. It has been estimated that over 17 million more Americans will be seeking Medicaid benefits in 2014. Additionally, this expands WellPoint’s capabilities of managing dual eligible patients not enrolled in either Medicare or Medicaid.

August 2012 – Cigna purchased Great American Supplemental Benefits Group for $305 million, making it the largest producer, distributor, and marketer of supplemental health products in the United States. With federal restrictions surrounding profit margin on health insurance products, Cigna looks to diversify its revenue stream by selling plans that fall outside the cope of the health care reform bill.

August 2012 – Aetna made headlines upon agreeing to acquire Coventry Health Care for $7.3 billion. The purchase instantly increases Aetna’s medical membership by 4 million. It also substantially increases the company’s Medicaid footprint, positioning them well for Health Exchange business come 2014. The acquisition also increases operational efficiencies with synergies expected to save about $400 million.

October 2012 – UnitedHealth Group purchased a 90% stake valued at $4.9 billion in Amil Participacoes SA, the largest health insurer and hospital operator in Brazil. With a growing middle class and a vibrant economy, the future of healthcare in Brazil looks increasingly bright. Many have viewed the bold move as indicator that UnitedHealth is the most diversified health company in the United States. As more and more regulations layer on top of American insurance companies, they will need to look for more creative ways to keep up with current profit margins.

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