UnitedHealth Purchases Definity for $300 Million To Boost Consumer-Driven Product Offerings
UnitedHealth Group, the nation's largest managed-care company in terms of members, on Monday announced that it would purchase Definity Health for $300 million in cash in a "bid to expand in the fast-growing area of high-deductible health plans coupled with medical spending accounts," the Wall Street Journal reports. Definity is one of the biggest U.S. operators of consumer-driven health plans for large self-insured businesses, and its 100 member employers include 23 Fortune 500 companies and about 500,000 members. Under the deal, Definity will retain its brand and CEO Tony Miller, and it will gain access for its members to UnitedHealth's discounts and health care services, including 460,000 doctors and 4,000 hospitals nationwide with which the insurer has contracts. Definity will operate within the UnitedHealth division that manages health benefits for large employers. The companies are both based in Minnesota (Fuhrmans, Wall Street Journal, 11/30). The acquisition is expected to be completed by the end of the year (Appleby, USA Today, 11/30). According to the AP/Louisville Courier-Journal, the acquisition will be "slightly beneficial" to UnitedHealth's earnings per share (AP/Louisville Courier-Journal, 11/29). Definity projects 2005 revenues of about $100 million. UnitedHealth expects about 32% growth in earnings per share for 2004 and an additional 20% to 21% in 2005, which would total $4.70 to $4.75 per share (Freudenheim, New York Times, 11/30).
UnitedHealth Banking on Consumer-Driven Plans
UnitedHealth has previously purchased Golden Rule Insurance and chartered its own bank, Exante, to help manage and implement health savings accounts. The company predicts that as of January, it will provide about 2.5 million members with some form of consumer-driven coverage. According to the Journal, the "long-term savings potential of consumer-driven health plans isn't clear," but as far as short-term savings, Definity last year reported a 3.2% growth in health care costs for its members, compared with the 7.5% to 11% increases reported by most employers (Wall Street Journal, 11/30). "[M]any employers" are still "waiting to see whether the [consumer-driven] plans deliver on promises to reduce health care costs," while some critics say HSAs "simply shift costs to workers and benefit mainly wealthy and higher-paid employees," USA Today reports. UnitedHealth announced earlier this year that the company's own 30,000 employees would only be given the option of high-deductible policies (USA Today, 11/30).
Company Reaction
Definity spokesperson Chris Delaney said his company "pioneered consumer-driven health care." Miller added, "The assets and support of UnitedHealth Group will allow Definity to maintain its leadership position and better serve its customers, while continuing to build upon a history of consumer-driven innovations." Mark Lindsay, a spokesperson for UnitedHealth, said Definity would be a good fit because of its technology that could help speed health care transactions. Lindsay said, "How do you bring in new methods to make sure they have a good experience, with less administrative hassle, with faster results?" (AP/Louisville Courier-Journal, 11/29).
Analyst Reaction
David Delahanty, a human resources consultant with Mellon Financial, said, "Definity has the tools for the consumer, passion for health care and name recognition. Even across the country they're viewed as being an innovator" (Phelps, Minneapolis Star Tribune, 11/30). William McKeever, an analyst with UBS, said that along with UnitedHealth's acquisition of Golden Rule, which sells high-deductible policies to individuals, the purchase of Definity provides the company with a "formidable one-two punch." McKeever added, "It shows the health plan is thinking about what's coming next" (USA Today, 11/30).
