Aetna has officially announced the company will acquire Coventry Health Care, Inc., therefore adding over 5 million members altogether. With nearly 4 million health plan members and 1.5 million Medicare Part D members, Aetna will be adding a hefty chunk of individual and government-funded business to their credit. It was a timely move to add more government health care to Aetna’s product line, so to not suffer the repercussions of being a private insurer in 2014.
Aetna CEO/president Mark T. Bertolini said that the company’s aim in the acquisition was to “expand our core insurance business, increase our presence in the fast-growing government sector and expand our relationships with providers in local geographies.”
The purchase of Coventry is the most recent deal in the highly threatened health insurance industry as a result of health care reform. Getting involved with government-based coverage is certainly a secure position for the major carriers involved in this transaction.
Coventry not only offers employer-based and individual coverage, but government-financed programs such as Medicare and Medicaid. The company’s earnings have been significant and growing over the past few months and years. Aetna reports that the deal is to close by mid-2013.
“The transaction also will create a significant synergy opportunity to further Aetna’s efforts to increase our operating efficiency. We expect synergies from the transaction to be $400 million annually in 2015,” said Joseph Zubretsky, senior executive vice president/CFO of Aetna. “These cost efficiencies will support our efforts to drive costs out of the system and offer products at a lower price point in the marketplace.”
Bertolini also stated, “Once the transaction is completed, our larger capital base also will enhance our ability to continue to invest in innovation, technologies and capabilities to lead the transformation of the U.S. health care industry.”
The transaction is subject to Coventry stockholder approval, as well as other customary closing conditions, including expiration of the federal Hart-Scott-Rodino antitrust waiting period and approvals of state departments of insurance and other regulators.
Aetna has agreed to buy Coventry for $7.3 billion including debt, $5.6 in cash and stock. Gaining access to the Medicare and Medicaid venues is worth every penny to Aetna in order to increase their negotiating power with doctors and hospitals.
This acquisition is one of several that have been taking place so far this year, including Cigna/Healthspring, now giving Aetna a larger presence among its peers. Consolidation is picking up and becoming very popular as we close in on the implementation date of Affordable Care Act, with mandatory individual health insurance and Medicaid accepting more applicants, not to mention government-based exchanges rivaling the entire private market.
In a strategy to not lose traction when the health care law is in place, Aetna and other major carriers will be prepared to offer more government programs and remain a presence among national insurance companies.