WellPoint Inc., the second-largest medical insurance provider in the US, is purchasing managed healthcare provider Amerigroup Corp. for $4.9 billion.
Both companies serve Medicaid patients, a portion of the US population that is expected to grow to 17 million when President Barack Obama’s healthcare law goes into effect in 2014.
Combined, the new entity aims to provide affordable healthcare to its customers, while also lowering state healthcare costs.
The acquisition is expected to be final during the first quarter of 2013, pending approval by state regulatory officials and Amerigroup’s shareholders. Once finalized, WellPoint will serve 4.5 million customers in 19 states, including the four largest states, making it the biggest Medicaid provider in the US.
Chairwoman, President and Chief Executive Officer of WellPoint Angela F. Braly says: "This is an opportunity to capitalize on the strengths of both companies to better serve our members and position our companies for future growth as the health insurance industry changes and as we prepare for health insurance exchanges."
9 Million Americans Dual Eligible
Amerigroup was not for sale, and was approached privately by WellPoint. Braly says two key factors influenced the go-ahead for the deal: states turning to managed healthcare providers to cut costs, and the US Supreme Court upholding Obama’s healthcare law.
Medicaid, which provides health coverage for the poorest Americans, is run jointly by federal and state programs. It also covers those with dealing with chronic or highly acute medical conditions. It accounts for $450 billion in annual spending and, according to both companies, only a fifth of Medicaid patients are on a managed-care plan.
Once the purchase is complete, WellPoint will be able to attract the dual eligible, which involves those covered by both Medicare and Medicaid. Some 9 million Americans are considered dual eligible, and this group accounts for $300 billion in spending per year.
A quarter of WellPoint’s revenue comes from plans sold to individuals and small businesses. Both of these groups are predicted to suffer once the healthcare law takes effect.
Key Statistics - Medical Device Market in the USA (source: Espicom)
- In 2011, the world’s largest medical device market was the United States with an estimated value of nearly $106 billion; the US has the world’s third-highest per capita expenditure at $339.
- Last year in the US, medical device imports grew by nearly 9%, reaching over $35 billion in value. The largest medical device category is diagnostic imaging, which grew by nearly 7.5% to hit more than $8 million in value.
- Seven of the top 10 medical-device manufacturers in the world are located in the US, including household names like General Electric and Johnson & Johnson as well as lesser-known companies like Medtronic, Covidien and Baxter.