Aetna will buy Coventry Health Care for $5.7 billion as the insurance industry realigns itself to better navigate the massive government health care overhaul.
The Hartford, Conn., company said Monday that it would pay $42.08 for each share of Coventry stock. That includes $27.30 in cash and a portion of its stock. The price represents a 20 percent premium on Coventry's Friday closing price of $34.94. The deal is valued at $7.3 billion, including debt from Coventry Health Care Inc., which is based in Bethesda, Md.
The acquisition ramps up Aetna's Medicare Advantage and Medicare prescription drug businesses, and it will grow the insurer's Medicaid business. Medicaid is the state-federal program that provides coverage for the needy and disabled that is targeted for expansion under the health care overhaul.
Millions of uninsured Americans are expected to gain coverage starting in 2014 through Medicaid as part of the overhaul, which also will offer subsidies to help more people buy private insurance coverage. States hire insurers to offer Medicaid coverage to their residents.
Medicare Advantage plans are privately run versions of the government's Medicare coverage for the elderly and also the disabled. Insurers have seen interest in these plans soar in recent years, as the baby boomer generation ages and becomes eligible for the subsidized coverage.
Medicaid and Medicare Advantage represent relatively small slices of Aetna's enrollment. All told, Aetna said the deal will raise the percentage of revenue it draws from government business to 30 percent, from 23 percent.
Shares of Coventry jumped more than 20 percent, or $7.15, to $42.09 Monday in pre-market trading
Big health insurers are turning their focus more to Medicaid.
Last month, Blue Cross-Blue Shield insurer WellPoint Inc. said it would spend $4.46 billion to buy another insurer that specializes in Medicaid, Amerigroup Corp. Last year, Cigna Corp. said it would buy HealthSpring for nearly $4 billion as it grabbed for a share of Medicare revenue.
Insurers also see growth opportunities in Medicaid due to patients who are eligible for both that program and Medicare. States are starting to move these so-called "dual eligible" residents into managed care programs that coordinate care and cut wasteful spending.
These patients generally have chronic or expensive medical conditions. When their care isn't coordinated, tests can be duplicated, and people who would qualify for help from Medicaid may not sign up because they aren't aware they may be eligible.
Aetna said Monday the deal is still subject to Coventry shareholder approval and regulatory review. It is expected to close in the middle of next year.