INDIANAPOLIS (AP) — WellPoint Inc., the nation's second-largest health insurer, will get a bigger chunk of the expanding market of people covered by Medicaid with its $4.46 billion acquisition of a provider of the program for needy and disabled Americans.
WellPoint said that it will spend $92 per share in cash for Amerigroup Corp., which runs Medicaid coverage in 13 states, including Texas, Florida, New York and New Jersey.
Medicaid, which is state- and federally funded, represents a growth opportunity for WellPoint and other big U.S. insurers. States are starting to move residents who qualify for both Medicaid and Medicare, which is a federally-funded program for people over age 65 and the disabled, into managed care programs that coordinate care.
These so-called "dual eligible" 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. States want to improve their care and cut wasteful spending.
WellPoint said the acquisition of Amerigroup, based on Virginia Beach, Va., gives it the opportunity for about $16 billion in potential revenue.
"The dual-eligible expansion opportunity is tremendous and was a driving force for this transaction," WellPoint Chairwoman and CEO Angela Braly told analysts.
The price of WellPoint shares climbed 3.3 percent, or $1.98, to $61.89 Monday afternoon, while Amerigroup stock soared 38 percent, or $24.51, to $88.85. The offer of $92 per share was a 43 percent premium to Amerigroup's closing price of $64.34 on Friday.
Big health insurers have relatively modest Medicaid businesses. That means that they aren't in a good position to compete for dual eligible business, Citi analyst Carl McDonald said in a research note. But he said that the Amerigroup deal makes WellPoint "a key player" in opportunities across the country.
Once the buyout is complete, WellPoint and its affiliated Medicaid plans will serve more than 4.5 million beneficiaries of state sponsored health care programs. WellPoint currently has nearly 1.9 million people enrolled in Medicaid plans.
Medicaid enrollment also is expected to expand after 2014 due to the federal health care overhaul, which aims to provide coverage to millions of uninsured people. One of the main ways it will accomplish this goal is by making more people eligible for Medicaid.
However, the extent of this enrollment growth is uncertain because the Supreme Court ruled last month that states can opt out of the planned expansion, and some have already said they plan to pass at least initially.
WellPoint shares sank nearly 6 percent on June 28, when the Supreme Court announced that it would largely uphold the overhaul. A large concentration of WellPoint's business involves individual coverage and insurance for employees of small businesses. Overhaul-imposed taxes and restrictions on how insurers can set prices are expected to squeeze profit margins for those businesses.
Leerink Swann analyst Jason Gurda said in a research note that the Amerigroup deal will help diversify WellPoint's revenue.
WellPoint says it will pay for the acquisition with available cash, commercial paper and by issuing new debt. The transaction still needs approval from regulators and Amerigroup stockholders, but it is expected to close in 2013's first quarter.
The deal is expected to add to WellPoint's 2013 earnings per share and add more than $1 per share by 2015. The company is maintaining its 2012 earnings outlook.
WellPoint runs Blue Cross-Blue Shield plans in several states and has about 33.7 million people enrolled in its plans.
AP Business Writer Michelle Chapman contributed to this story from New York.