WellPoint-Anthem, UnitedHealth-MAMSI Mergers Will Create Two of Nation’s Largest Insurers

As expected, officials from Indiana-based Anthem on Monday announced an agreement to purchase California-based WellPoint Health Networks for $16.4 billion in cash and stock, the New York Times reports. The combined company will become the largest health insurer in the nation (Freudenheim, New York Times, 10/28). The merged company, which will use the name WellPoint and have its headquarters in Indianapolis, will have $27.1 billion in assets, 40,000 employees and 26 million members in 13 states (Dang/Salganik, Baltimore Sun, 10/28). Under the agreement, Anthem will pay WellPoint shareholders $23.80 in cash and one share of Anthem stock for each share of WellPoint stock (Dixon, Reuters/Orlando Sentinel, 10/28). WellPoint CEO Leonard Schaeffer will become chair of the new company; Anthem CEO Larry Glasscock will become its president and chief executive (New York Times, 10/28). Operating efficiencies will likely save the merged company at least $50 million in 2004, $175 million in 2005 and $250 million in 2006 (Japsen, Chicago Tribune, 10/28). WellPoint spokesperson Ken Ferber said that the agreement will not result in a "significant job loss" or revisions in the health plans in the 13 states, the Atlanta Journal-Constitution reports (Miller, Atlanta Journal-Constitution, 10/28). State regulators must approve the agreement, which could become final by the middle of next year (AP/Boston Globe, 10/28).

UnitedHealth To Purchase MAMSI
Meanwhile, officials at Minnesota-based UnitedHealthGroup, currently the largest health insurer in the nation, on Monday announced an agreement to purchase Maryland-based Mid Atlantic Medical Services for about $2.7 billion in cash and stock, the Washington Post reports. UnitedHealth has about 18 million members, and the purchase of MAMSI will raise the number to about 20 million (Brubaker, Washington Post, 10/28). Under the agreement, UnitedHealth will pay MAMSI shareholders $18 in cash and 0.82 shares of UnitedHealth stock for each share of MAMSI stock (AP/Boston Globe, 10/28). MAMSI will become an affiliate of UnitedHealth and will continue to operate under that name, at least in the short term. MAMSI will begin to administer health plans for about 1.5 million UnitedHealth members in the mid-Atlantic region; MAMSI currently has two million members in the area (Washington Post, 10/28). The agreement will not likely result in job losses (Glanz, Washington Times, 10/28). The effect that the agreement will have on premiums for members in the Washington, D.C., area remains "unclear," the Post reports. State regulators must approve the agreement, which could become final in the first quarter of 2004 (Washington Post, 10/28).

Analysis, Reaction
The agreements between the health insurers have prompted "a storm of national and political debate about the reduction in numbers of competitors in most markets to about half the level of the mid-1990s," the Sun reports (Baltimore Sun, 10/28). After the agreements are finalized, the two new combined companies will provide health insurance to 46 million members, or 27% of U.S. residents who have private health coverage, USA Today reports (Appleby, USA Today, 10/28). Such agreements, part of a 10-year trend in the health insurance industry, "may be picking up now because the companies are heading into a tougher marketplace," the Wall Street Journal reports (Rundle et al., Wall Street Journal, 10/28). According to the Washington Post, the agreements also "illustrate the continuing struggle of managed care to live up to the promises" of reduced health care costs and improved quality of care (Crenshaw, Washington Post, 10/28). John Farrall, an analyst at National City Wealth Management, said, "In a period where you're having no enrollment growth, the only way you really get growth is via acquisitions" (Zimm, St. Louis Post-Dispatch, 10/28). Dr. Donald Palmisano, president of the American Medical Association, said that agreements will lead to a "health care system dominated by a few publicly traded companies that operate primarily in the interest of shareholders" (New York Times, 10/28). Although the agreements "aren't likely to bring relief anytime soon to the national problem of rising health insurance premiums," they may lead to "greater standardization and simplification of an enormously complex system" in the long term, according to the Journal (Wall Street Journal, 10/28).

Broadcast Coverage
Minnesota Public Radio's "Marketplace" on Monday reported on recent consolidations among health insurers. The segment includes comments from Douglas Sherlock of the Sherlock Company and Sheryl Skolnick, hospital analyst with Fulcrum Global Partners (Palmer, "Marketplace," MPR, 10/27). The full segment is available online in RealPlayer.