By Allison Bell
Aetna Inc. (NYSE:AET) has tried to position itself better for the world of Patient Protection and Affordable Care Act (PPACA) health insurance exchanges by agreeing to pay $7.3 billion in cash and stock for Coventry Health Care Inc. (NYSE:CVH).
Aetna, Hartford, is starting with 18 million enrollees, 437,000 Medicare Advantage enrollees, 1.2 million Medicaid enrollees, and $36 billion in projected 2012 revenue.
Coventry, Bethesda, Md., has 4 million enrollees, 253 million Medicare Advantage enrollees, 932,000 Medicaid enrollees, and $14 billion in projected 2012 revenue.
Aetna and Coventry need to get approval for the deal from Coventry shareholders, antitrust regulators and state departments of insurance. The companies hope to complete the transaction by mid-2013.
The deal should help Aetna
increase its market share in the Midwest and Mid-Atlantic states and put it on a more even footing with WellPoint Inc., Indianapolis (NYSE:WLP), and UnitedHealth Group Inc., Minnetonka, Minn. (NYSE:UNH), which each have about 36 million enrollees, Aetna says.
Aetna likes Coventry's emphasis on efficient, low-cost plans with relatively narrow provider networks, Aetna says.
The deal also should help give Aetna the mix of plans and products it will need to succeed on the exchanges, Aetna Chairman Mark Bertolini said today during a conference call.
PPACA calls for states and federal agencies to create a new system of exchanges
, or Web-based health insurance supermarkets, that individuals and small groups can use to buy health coverage starting in 2014. PPACA also calls for all health carriers to offer coverage on a guaranteed issue, mostly community-rated basis.
Aetna itself emphasizes the uncertainty surrounding PPACA in a discussion of deal risk factors.
"Components of the legislation will be phased in over the next 6 years, and Aetna will be required to dedicate material resources and incur material expenses during that time to implement health care reform," the company says. "Many significant parts of the legislation...require further guidance and clarification both at the federal level and/or in the form of regulations and actions by state legislatures to implement the law. In addition, pending efforts in the U.S. Congress to repeal, amend, or restrict funding for various aspects of health care reform, the 2012 presidential and congressional elections, and the possibility of additional litigation challenging aspects of the law continue to create additional uncertainty about the ultimate impact of health care reform."
If PPACA takes effect on schedule and the exchanges work as expected, many individuals will be able to move relatively freely between small group, commercial individual and Medicaid plans, and having the right mix of different types of plans should help a company compete in that environment, Bertolini said.
Bertolini said Aetna believes it had to move on making any acquisition designed to help the company compete in 2014 quickly.
"We would say time is running out to get a transaction done," Bertolini said.
Bertolini said Coventry is especially attractive as 2014 nears.
"They're ahead of most of the other businesses in getting ready for health care reform," Bertolini said.
Aetna is announcing the deal about 10 years after health insurers were rushing to flee from the predecessor to the Medicare Advantage
private Medicare plan program, the Medicare + Choice program.
Aetna said in late 2011, for example, that federal changes in Medicare + Choice funding rules were making offering coverage through the program unsustainable.
Originally published on LifeHealthPro.com