WellPoint Inc is said to buy its rival Amerigroup for $4.46 billion, a move that will nearly double its Medicaid business. This is a major move on the expansion of the U.S. government’s health plan for the less wealthy.
The companies both announced the deal on Monday, a week and a half after the U.S. Supreme Court upheld President Barack Obama’s healthcare law. The law aims to extend coverage to more than 30 million uninsured Americans.
The decision is said to help serve as a catalyst to kick off a wave of acquisitions among insurers.
"With or without healthcare reform, the Medicaid business is extremely lucrative and offers big growth potential," Oppenheimer analyst Michael Wiederhorn said. "A lot of states already want to move their business to Medicaid HMOs. But the Affordable Care Act (healthcare law) would further expand the business, so you get a double bonus."
With WellPoint and Amerigroup combined together, they will serve more than 4.5 million beneficiaries of state-sponsored healthcare plans. This includes Medicaid recipients in 19 states, the companies said together in a joint statement.
The move will also increase WellPoint’s Medicaid presence and make it one of the largest Medicaid plan administrators in the United States, along with UnitedHealth Group Inc.
The 2010 healthcare reform law is designed to provide coverage for 16 million more Americans through privately run health insurance exchanges in each state.
Still, the Supreme Court ruling allows states to choose if they wish to participate in the Medicaid expansion. The law will take full effect in 2014.