Metropolitan Life Insurance Co. and the Travelers Insurance Co. say they are hoping to gain market share in 25 to 30 areas nationwide by combining their group health businesses and focusing on managed care.
The two giants said last week they would form a new company, which they will own equally, to meet that goal, a MetLife spokeswoman said.
MetLife and Travelers' combined healthcare operations, covering 36 million beneficiaries in 42 states, garnered $19.9 billion in premiums and other revenue in 1993. But a huge chunk of that business is still in traditional indemnity plans that employers are phasing out in favor of managed care.
Having watched competitors surge ahead of them in developing HMO networks, MetLife and Travelers are responding by joining forces.
"Neither one of them has done a very good job in the managed-care business, so a combination of the two will produce better results than either of them separately," said Douglas Sherlock, an analyst and principal at the Sherlock Co. in Gwyn-edd, Pa.
"Travelers has all but missed the boat in the HMO business," although the two companies are among the most recognized names in insurance nationwide, Mr. Sherlock said.
The new company will be run by managed-care experts. Kennett L. Simmons, former chairman and chief executive officer of United HealthCare Corp., will become CEO of the new company. He will be assisted by Tom Pyle, CEO of MetLife Health Care Corp. and former head of Harvard Community Health Plan, and Elliot Gerson, head of Travelers' managed-care and employee benefit operations.
As part of the deal, MetLife will pay Travelers $350 million for its group life business and acquire the balance of Travelers' non-medical group business. Travelers will use the cash to capitalize the new company; MetLife, which is bringing more managed-care networks to the deal, will contribute less cash.
The deal is expected to close by Jan. 1, 1995.