It’s official, United HealthGroup intends to acquire Pacificare, increasing their membership to 25.7 million and tripling their Medicare insured business. This will also strengthen UHG’s west coast operations, long a sore spot for the company.
With the announcement came protests from consumer advocacy groups and others in California. These groups were instrumental in delaying the Anthem-Wellpoint deal, which passed after the companies agreed to allocate over $300 million to fund health care for low income citizens. Expect these groups to weigh in aggressively on this deal as well.
That said, UHG is more expert in acquisitions than the Anthem management was at the time of the Wellpoint deal, and are undoubtedly even smarter now. They will likely move things along more expeditiously than some would expect.
If the deal does go thru, UHG will be a close second to Anthem’s membership of 27.7 million. Ratings agency Fitch likes the UHG – Pacificare deal, noting
“Fitch views the transaction as strategically beneficial to UnitedHealth. Approximately 1.8 million, or 57% of Pacificare’s 3.2 million members are located in California, which is a state where UnitedHealth has historically lacked a competitive market share. Pacificare’s provider network within the State of California will be of significant value to UnitedHealth, which currently gains use of a provider network through a network access agreement with Blue Shield of California. In addition, UnitedHealth will be acquiring the largest player in the Medicare Advantage program.”
Frequent readers will note I have ong been talking about constraints on growth for these big managed care plans. There options are to acquire, grow organically, or diversify. While the price seems steep, it is better than cutting rates to gain market share or getting into another line of insurance about which they know little.
Expect there to be renewed interest in plans such as Cigna and Coventry.
This deal reduces UHG’s expenses (it will no longer have to “rent” BC CA’s networks), adds expertise in pharmacy management and Medicare, strengthens its networks nationally, and adds significant depth to their national accounts efforts. A tough competitor just got tougher.
What does this mean for you?
If you are a provider, there will be increasingn pressure in CA as the number of “suppliers” dwindles. Oligopolies have some benefits, but rarely do they spur innovation and intense competition the likes of which have driven the insurance industry over the last two decades.
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