Why Wellpoint wants Amerigroup
Wellpoint’s plan to pay $4.9 billion to acquire Amerigroup signals the health insurer’s ambition to claim a bigger piece of the growing business of Medicaid managed care.
Indianapolis-based Wellpoint last week announced a definitive agreement to acquire Amerigroup, a Virginia Beach, Va.-based managed-care company. The combined company will have a Medicaid presence in 19 states and serve about 4.5 million Medicaid beneficiaries.
The deal, which is expected to nearly double the insurer’s Medicaid business, came less than two weeks after the U.S. Supreme Court’s decision on the healthcare law, which introduced some uncertainty in the law’s intended expansion of Medicaid eligibility (See related story, p. 8).
Wellpoint, nevertheless, sees opportunity. “We expect Medicaid spending under managed-care programs to increase by nearly $100 billion by the end of 2014,” said Angela Braly, Wellpoint’s president and CEO, during a conference call. “These opportunities will develop organically in addition to the Medicaid eligibility expansion under healthcare reform.”
She said the Medicaid market’s growth opportunities are not limited to Medicaid expansion under the Patient Protection and Affordable Care Act; they also include economic, demographic and budgetary factors. “Many state budgets are facing significant budget challenges as they strive to provide access to healthcare for their most underserved residents,” Braly said.
David Windley, a Jefferies & Co. analyst, said the deal was unexpected. However, he noted that the insurer didn’t overpay for Amerigroup’s assets and the expansion of Wellpoint’s footprint, including both companies’ enhanced positions among the dual-eligible population, is a key component of the transaction.
Fitch Ratings said in a July 9 note that the acquisition is “strategically beneficial” to Wellpoint, in part because of the added expertise and access to Medicaid beneficiaries that Amerigroup will provide to Wellpoint, as well as an improved position to benefit from dual-eligibles.