UNH to Buy Two MA Health Plans - Analyst Blog

By Zacks Equity Research,

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On Tuesday, UnitedHealthcare, a division of UnitedHealth Group, Inc. ( UNH ), announced its intention to acquire two privately-owned health plans - Preferred Care Partners (Preferred Care) and Medica HealthCare Plans (Medica). Both these companies have their operations spread across Florida and serve Medicare Advantage ("MA") members.

With this acquisition, UnitedHealth will add 75,000 Medicare Advantage members to its existing count. While Miami-based Preferred Care has 50,000 MA members, Coral Cables-based Medica serves approximately 35,000 MA members. UnitedHealth will also have an additional 12,200 Medicaid beneficiaries (5000 members from Preferred Care and 7200 from Medica). 

UnitedHealthcare will also acquire Preferred Care's six primary care centers located in Miami-Dade and Broward counties and two medical centers from Medica, situated in Coral Gables and Hialeah.

The recently announced twin acquisition, which are likely to be closed at the end of the year, clearly indicates UnitedHealth's increasing focus on the MA market. Earlier during the month, the company completed the acquisition of yet another privately-held company, XLHealth Corp, a sponsor of Medicare Advantage health plans for recipients with special needs.

Brentwood-based Inspiris, which provides care and care management services to elderly patients in Medicare, Medicaid and commercial insurance populations, was also acquired by UnitedHealth last year.

A Medicare Advantage is a privately-run version of the government's Medicare insurance program for the aged and the disabled.

With an increase in the population of baby boomers, the companies see ample opportunities in this area over the next few years. In fact, in the next 25 years, compound annual growth rate of the Medicare population is expected to increase to 2.7% from 1.5% at present.

Managed care is expected to get a lot more attention as the federal and state governments try to reduce $1.2 trillion from the federal deficit over the next decade. Major cuts in the Medicare program, whenever it happens, will necessitate a shift in some of the costs to the seniors, making their Medicare Advantage plans more attractive than traditional Medicare plans. Moreover, many individuals would look forward to supplementing government coverage with private insurance, thus boosting the demand for Medicare Advantage plans.

Carriers in the health insurance sector are in a race to win MA market share and planning such acquisitions is the quickest way to achieve the end. An overview of the recent deals will provide us some idea on the pace of merger and acquisition ("M&A") activity in this arena: 

  • Last month, CIGNA Corp. ( CI ) completed the acquisition of HealthSpring Inc. which has a niche presence in the MA market.
  • Also, Humana Inc . ( HUM ) completed its acquisition of MD Care, specializing in MA business last month.
  • In October last year, Aetna Inc. ( AET ) closed its acquisition of Genworth's Medigap business for $290 million.
  • CareMore Health Group was also purchased by WellPoint Inc. ( WLP ) last year.

Such an acquisition spree in a short span of time clearly manifests stiff competition amongst health insurers and any further news on the front will not come as a surprise in the coming months.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Stocks: AET , CI , HUM , UNH , WLP

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