United HealthCare Corp. is in discussions with MetraHealth Cos. about acquiring the insurer in a deal reportedly worth $1.65 billion.
MetraHealth, which began operations in January, was formed through the combined health insurance operations of Metropolitan Life Insurance Co. and Travelers Insurance Co. The two giants, which had lagged behind competitors in converting their business to managed care, joined forces to gain market share (June 20, 1994, p. 14).
MetraHealth, which has 11 million enrollees nationally, has only 4.9 million in various managed-care plans, including 450,000 in HMOs.
If the deal goes through, United will be faced with converting MetraHealth's massive indemnity business into managed care.
"United can probably do it better than MetraHealth can do it independently," said Douglas Sherlock, an HMO analyst based in Gwynedd, Pa.
The Wall Street Journal reported last week that under the proposed deal MetLife and Travelers would receive about $1.65 billion in stock and cash and split $350 million more if certain earnings targets are met.
In a statement, Minneapolis-based United confirmed the acquisition talks. But spokeswomen for United and MetraHealth refused to provide details of the possible transaction.
The deal would complete a circle for MetraHealth's chief executive officer, Kennett L. Simmons, who was formerly chairman and CEO of United.
For the first quarter ended March 31, MetraHealth had net income of $40 million, the company spokeswoman said. She declined to release revenue totals.
United has 3.8 million enrollees in managed-care plans and serves an additional 27 million through specialty care such as managed mental health and managed-care programs for the elderly.
In 1994, United reported net income of $310 million on revenues of $3.8 billion.
The deal would be an expansion for United, since there is "little geographic overlap between the two companies," Sherlock said.