Market saturation and margin-squeezing health care reform have prompted large managed health care companies such as Aetna, Cigna, and Humana to snap up smaller players to keep earnings growth alive, says a Wall St Journal (WSJ) article.
Last week, Cigna said it would buy HealthSpring for $3.8 billion, "giving it a foothold in the senior-citizen and Medicare markets." Cigna expects the deal, which boosted HealthSpring's share price by 33%, will increase its earnings per share in the first year.
Also last week, Amerigroup, a large Medicaid insurer, said it would pay $85 million to acquire Health Plus' 320,000 members, WSJ reports. Some investors think smaller companies such as Coventry Health Care and Health Net could soon become targets, along with Medicaid specialists such as Centene, Molina Healthcare, and even Amerigroup.
"We're on the verge of a massive amount of M&A [mergers and acquisitions]," Jim Lane, a money manager, told WSJ. "There's no organic growth left in this business except for pricing."
Membership in managed-care plans offered through employers has fallen 5.4% from its 2000 peak, to 169.7 million people in 2009, the most recent year for which data exist.
The biggest unknown for the industry is health care reform. If the Supreme Court overturns the health care law, managed-care stocks would get a boost, says the article. But if the law stands, it will favor more consolidation.