Catering to Detroit and Chicago’s poor has made the Cottons rich.
David Cotton and his family spent two decades building Meridian Health Plans into the biggest private provider of Medicaid benefits in Michigan and Illinois. It serves about 1.1 million members, with more than $4.3 billion of revenue forecast for 2018.
Now they’re cashing out. WellCare Health Plans Inc. announced in May that it’s buying Meridian for $2.5 billion, a deal that includes two state insurance businesses and a pharmacy benefits manager.
Cotton, 67, his wife Shery, and their three sons own the entire company, according to filings. The sale is expected to be completed by year-end and would leave the family with about $2 billion after taxes, according to the Bloomberg Billionaires Index. That puts them in the same wealth stratosphere as Detroit’s Dan Gilbert, owner of Quicken Loans, and Chicago’s Penny Pritzker, the Hyatt Hotels heiress.
Meridian and the Cottons didn’t respond to requests for comment.
The windfall is a reflection of the nation’s burgeoning $3.3 trillion health care system, with Medicaid spending rising 3.9% to $566 billion in 2016, according to the Centers for Medicare and Medicaid Services. It’s projected to almost double to $996 billion over the next decade.
Two trends are helping health insurers like Meridian. The Affordable Care Act, which became law in 2010, spurred the expansion of Medicaid to more low-income people, bringing insurers millions of new customers. And states have increasingly turned over more of the responsibility for running their Medicaid programs to private insurers. One recent estimate put the number of Medicaid beneficiaries who get coverage from private firms at more than 54 million.
While Meridian lost about $14 million last year, revenue more than tripled to $3.6 billion in the five years through 2017, according to data compiled by A.M. Best. Other Medicaid-focused insurers are growing, too. Centene Corp., which has surged almost 1,000% since the day then-President Barack Obama signed the Affordable Care Act in 2010, reached a $3.75 billion deal last year to acquire New York insurer Fidelis Care, and bought Health Net Inc. for about $6 billion in 2016.
While physicians are the highest-paid professionals in the U.S., they’re rare among the ranks of billionaires. Molina Healthcare Inc., which offers Medicaid plans in states including California, Florida, Texas and New York, has surged more than 600% in the same period and is now worth $7.8 billion. That has helped the founding Molina family amass a $1.3 billion fortune, according to an analysis by the Bloomberg Billionaires Index. The Molinas declined to comment on their wealth.
A proxy filing shows that family members owned about 18% of the firm last year, before the board ousted Chief Executive Officer J. Mario Molina, after the physician spent two decades at the helm, and his brother, finance chief John C. Molina, fueling speculation the insurer could be sold. Their father David Molina started the insurer’s predecessor company in 1980.