Close Close

Life Health > Health Insurance

Deals Speed Health Insurer Consolidation

Your article was successfully shared with the contacts you provided.


Four big managed care companies took two giant steps last week toward consolidating the U.S. health finance system.

Anthem Inc., Indianapolis, agreed to acquire a slightly larger company, WellPoint Health Networks Inc., Thousand Oaks, Calif., through a merger with a value of about $16 billion in cash and stock.

The combined company would be called WellPoint Inc. and have its headquarters in Indianapolis. Anthem directors would control the WellPoint Inc. board. The companies structured the deal as an acquisition by Anthem in part because “the state of Indiana has a much friendlier regulatory process,” WellPoint spokesman Ken Ferber says.

The merger would help two big, multi-regional carriers come closer to offering coverage on a truly national basis.

At the end of 2002, Anthem provided or administered medical coverage for 11 million people and WellPoint covered 13 million. In the last nine months, acquisitions and internal growth have pushed combined membership to 26 million.

One of Anthems big Midwestern competitors, UnitedHealth Group Inc., Minnetonka, Minn., wants to acquire Mid Atlantic Medical Services Inc., Rockville, Md., for $2.7 billion in cash and stock. MAMSI covered 2 million people at the end of 2002. UnitedHealth covered 16 million and had 1.5 million members in MAMSIs mid-Atlantic market. By the time UnitedHealth closes the deal, smaller deals and internal growth could push total membership to 19 million.

Together, UnitedHealth and the new WellPoint Inc. could end up insuring the health of more than one-quarter of all privately insured Americans and an even higher percentage in some markets.

At the new WellPoint, “well emerge as the leading health benefits company in the nation, with the largest membership base in 12 of the 13 key states where we hold a Blues license,” says Anthem Chairman Larry Glasscock.

WellPoint Chairman Leonard Schaeffer says the Anthem deal could help the entire U.S. health care system.

“We can help take a very fragmented mom-and-pop industry and get economic improvements in terms of standardization and simplification of transactions,” he says.

Schaeffer has been calling for consolidation of Blues plans for years. He predicted in 1995 that the country might end up with 20 regional Blues plans.

Neither the Anthem-WellPoint deal nor the UnitedHealth-MAMSI deal is a sure thing. Regulators in Kansas and Connecticut have blocked efforts by Anthem to acquire Blues plans in their states in recent years, and Maryland regulators recently stopped an attempt by WellPoint to acquire CareFirst Inc., Owings Mills, Md.

UnitedHealth broke off an agreement to acquire Humana Inc., Louisville, Ky., in 1998.

The American Medical Association, Chicago, already is urging federal regulators to scrutinize the Anthem-WellPoint and UnitedHealth-MAMSI deals.

The deal announcements suggest the United States “is headed toward a health care system dominated by a few publicly traded companies that operate primarily in the interest of shareholders,” says AMA Chairman Donald Palmisano.

Some health insurance producers also worry about consolidation.

“When the marketplace contracts, there are fewer choices for employers, and there are fewer chances to be creative,” says Keith Bell, president of Benefit Plans Unlimited Inc., Bloomfield, Conn., who watched Anthem acquire Blue Cross and Blue Shield of Connecticut in 1997.

Anthem has improved the old Connecticut Blues service and maintained a similar pricing strategy, but it also has started requiring producers to sell substantial amounts of dental insurance and other ancillary benefits to stay in its market leaders program, Bell says.

In Nevada, where Anthem acquired Blue Cross and Blue Shield of Nevada in 1999, “one of the things they did was to terminate a lot of the brokers,” says Robert Bishop, president of KIA Insurance, Las Vegas, and a past president of the Nevada State Association of Health Underwriters. “The attitude was, If you dont put all of your business or a majority of your business with us, we dont want you.”

Bishop, who still sells Anthem coverage, says Anthem has improved customer service and may be competing somewhat harder than the old Nevada Blue did for individual insurance business. “Theyve done a good job of trying to answer brokers needs,” Bishop says.

But Anthem now sells through telemarketers in Nevada, and Bishop says he believes Anthem would like to stop selling through brokers.

California brokers are hoping WellPoints pro-producer attitude will prevail after the merger. WellPoint “is as friendly to the broker community as anybody,” says Jeffrey Miles, a Marina del Rey, Calif., broker who is president of the California Association of Health Underwriters.

Reproduced from National Underwriter Life & Health/Financial Services Edition, October 31, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.