WellPoint to buy Amerigroup for $4.46B
INDIANAPOLIS — Health insurer WellPoint Inc. will raise its stake in a market poised for substantial growth with its $4.46 billion acquisition of Medicaid coverage provider Amerigroup Corp.
WellPoint, the nation’s secondlargest insurer, said Monday that it will spend $92 per share in cash for Virginia Beach, Va.-based Amerigroup Corp., which runs Medicaid coverage in 13 states, including Texas, Florida, New York and New Jersey.
Medicaid is the state- and federally funded program that provides health coverage for the needy and disabled. It represents a key piece of the growth opportunity Well-Point sees in the deal.
Many states have been moving residents who qualify for both Medicaid and Medicare into managed care programs that coordinate care. Medicare is the federally funded program for people over age 65 and the disabled.
These so-called “dual eligible” patients generally have chronic or expensive medical conditions. When their care isn’t coordinated, tests can be duplicated, and people who would qualify for help from Medicaid may not sign up because they aren’t aware they may be eligible. States want to improve their care and cut wasteful spending.
WellPoint said the Amerigroup acquisition gives it the opportunity for about $16 billion in potential revenue.
“The dual-eligible expansion opportunity is tremendous and was a driving force for this transaction,” WellPoint Chairwoman and CEO Angela Braly told analysts.
Big health insurers have relatively modest Medicaid businesses, which means they aren’t in a good position to compete for dual eligible business, Citi analyst Carl Mc-Donald said in a research note. But he said that the Amerigroup deal makes WellPoint “a key player” in opportunities across the country.
Once the buyout is complete, WellPoint and its affi liated Medicaid plans will serve more than 4.5 million beneficiaries of statesponsored health care programs. WellPoint currently has nearly 1.9 million people enrolled in Medicaid plans.
Medicaid enrollment also is expected to expand after 2014 due to the federal health care overhaul, which aims to provide coverage to millions of uninsured people. One of the main ways it will accomplish this goal is by making more people eligible for Medicaid.
However, the extent of this enrollment growth is uncertain because the Supreme Court ruled last month that states can opt out of the planned expansion, and some have already said they plan to pass at least initially.
WellPoint shares sank nearly 6 percent on June 28, when the Supreme Court announced that it would largely uphold the overhaul. A large concentration of WellPoint’s business involves individual coverage and insurance for employees of small businesses. Overhaul-imposed taxes and restrictions on how insurers can set prices are expected to squeeze profi t margins for those businesses.