Aetna-Coventry signals Health Net, WellCare takeovers

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aeWith takeovers of managed care providers exceeding $14 billion in less than a year, Health Net Inc. and WellCare Health Plans Inc. are among the last remaining targets as aging baby boomers and the new health-care law boost demand.

Aetna Inc. said this week it will expand further into plans administering Medicare and Medicaid with a $5.6 billion purchase of Coventry Health Care Inc., the biggest takeover of a U.S. health maintenance organization since 2005, according to data compiled by Bloomberg. The announcement follows Cigna Corp.’s agreement in October to buyHealthspring Inc., and the WellPoint Inc. disclosure last month that it will acquire Amerigroup Corp.

Demand for Medicare is on the rise with 8.6 million more Americans projected to enroll by 2016 as the first wave of baby boomers turns 65. At the same time, the Patient Protection and Affordable Care Act upheld by the Supreme Court in June will add more patients to Medicaid, which provides coverage for the poor. Stifel Financial Corp. says the next takeover targets may include WellCare, both a Medicare and Medicaid insurer, or Health Net, which like Coventry offers commercial insurance in addition to the U.S. government-sponsored plans.

“You still could see more consolidation,” Maria Mendelsberg, a Denver-based fund manager at Cambiar Investors, which oversees $7 billion, said. “I think a lot of these bigger companies want to boost their Medicaid and Medicare businesses because those are the areas that are growing.”

Cambiar’s Small Cap Fund, which owns Health Net shares, has outperformed 95 percent of rival funds in the last three years.

Crystal Warwell Walker, spokeswoman for Tampa, Fla.- based WellCare, and Brad Kieffer, spokesman for Woodland Hills, Calif.-based Health Net, said it’s the companies’ policies not to comment on market speculation.

WellCare rose 1.91 percent or $1.06 to $56.53, and Health Net gained 4.68 percent or $1.01 to $22.04 in trading Wednesday as of 4 p.m.

Aetna, the third-biggest U.S. health plan, said this week that its acquisition of Bethesda, Md.-based Coventry will add more than 5 million more customers to its existing 18 million people in medical plans. The additions include 253,000 people on Medicare health plans as of June 30, 932,000 on Medicaid, and almost 1.5 million more Medicare enrollees who get prescription drug coverage.

The government currently pays about half of the total medical bill for the U.S. through programs such as Medicare and Medicaid. Starting in 2014, the new health-care law orders states to open Medicaid to people making as much as 133 percent of the federal poverty level. The law may add as many as 17 million patients under Medicaid.

Medicare enrollment will rise to 57.3 million people in 2016, an increase of 8.6 million from 2011, according to the 2012 annual report from the government program’s trustees. It is experiencing an influx as the first baby boomers — people born between 1946 and 1964 — started turning 65 last year.

Commercial insurers such as Health Net and WellCare offer the government program through Medicare Advantage plans, covering medical costs including physician fees and hospital charges.

“Anything with government exposure — Medicare Advantage and Medicaid — are viewed as more attractive growth opportunities,” Robert Kang, a San Francisco-based health care analyst and fund manager at Highmark Capital Management Inc., which oversees about $17.5 billion, said. “The Medicare Advantage program is a very attractive insurance product for seniors.”

WellCare may draw takeover interest after almost 60 percent of its $6.11 billion in sales last year came through Medicaid policies, and the rest from Medicare, said Thomas Carroll, an analyst at Stifel in Baltimore. Like other Medicaid specialists, the $2.35 billion company may seek the safety of a larger owner as it faces the challenges of bringing on expensive new patients and fighting for state contracts, he said.

WellCare had 1.5 million Medicaid members and 1.04 million in Medicare as of June 30, according to its quarterly earnings statement.

Susquehanna International Group LLP said last month that WellCare is an attractive target. The company’s price-earnings ratio fell to a more than three-year low in June. At almost 8 times profit, it was trading at about a 37 percent discount to the median ratio among U.S. managed-care providers, data compiled by Bloomberg show.

Health Net may also lure buyers because it primarily focused on Medicare and Medicaid in California and it secured a $16.7 billion Pentagon contract in 2010 to provide benefits to military members and their families in the northeast U.S., Stifel’s Carroll said. It had 1.06 million Medicaid customers in California and 228,000 Medicare Advantage members across three states as of June 30, according to a regulatory filing.

Aetna-Coventry signals Health Net, WellCare takeovers – Connecticut Post.

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