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Aetna bets on Obamacare

Today, Aetna, the third-largest U.S. health plan, agreed to buy Coventry Health Care for $5.6 billion.  Aetna paid a 20 percent premium for Coventry.  Why is Coventry such an attractive target?

The answer is that President Obama’s Health Reform will greatly expand the number of people eligilbe for Medicaid.  Since many states are moving towards contracting with insurers to provide the health care services for these beneficiaries, these new customers represent a new market for insurers.

The deal will add more than 5 million customers to Aetna’s 36.7 million members, including 250,000 people on Medicare health plans and 930,000 on Medicaid. Coventry provides prescription drug coverage to 1.5 million more Medicare enrollees as well.

Further, more and more Medicare beneficiaries are opting for private plans.  According to MedPAC, since 2006, enrollment has grown by about 75 percent.  Currently, one in four Medicare beneficiaries are enrolled in a private (i.e., Medicare Advantage) plan.

These figures do not even count the new market of individuals in the health insurance exchanges that this companies can target.

With government’s expanding role in the provision of health care, private insurers want a piece of the pie.

Aetna isn’t the only one making moves.  The Huffington Post reports that: “The second-biggest health insurance company in the U.S., WellPoint Inc., announced last month it would acquire Amerigroup Corp., a firm that does big business with state Medicaid programs, for $4.9 billion. Cigna Corp. bought HealthSpring Inc., which specializes in Medicare plans, for $3.8 billion in January.

“You’ve got an arms race going on in health care,” said Robert Laszewski, of Healthcare Policy and Marketplace Review.


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