Rebounding from its scuttled merger with Health Systems International, Woodland Hills, Calif.-based WellPoint Health Networks signed an agreement to acquire the group life and health subsidiary of Massachusetts Mutual Life Insurance Co. for $380 million.
Combining with the Springfield, Mass.-based unit would create the second-largest for-profit managed-care company, with annual revenues of almost $4 billion and nearly 4 million enrollees. The combination would be half as big as Minneapolis-based United Healthcare Corp., which has $8 billion in revenues and 8 million enrollees.
It is WellPoint's first major foray outside California and sets the stage for other alliances in the HMO's expansion strategy. The deal is expected to close by the end of March.
It makes good on the promise by WellPoint and Blue Cross Chairman and CEO Leonard Schaeffer-made at the time of the proposed merger with HSI-to take the HMO nationwide. Blue Cross is WellPoint's majority owner. Massachusetts Mutual's large indemnity business allows WellPoint to offer a range of managed-care choices to employers in 50 states, with a goal of eventually converting them to HMOs.
Under Schaeffer, Blue Cross itself evolved from being mostly an indemnity company in the mid-1980s to the point where almost all its enrollees are now in some form of managed care.
"But the HMO product is not the end-all," said a WellPoint spokesman. "Our focus is on the fact that members want choice." That will appeal to employers' benefits managers who want to offer "a full spectrum" of healthcare products, said David Blume, co-managing director of Andersen Consulting's health management practice in Hartford, Conn.
Besides their group health products, WellPoint and its acquisition have "a huge dental business, which is just now getting into managed care," Blume said. WellPoint's move is similar in strategy to United's acquisition last year of MetraHealth Cos., most of whose enrollees are still in indemnity plans.
Buying a plan with indemnity enrollees is a lot cheaper than acquiring an HMO, Blume said. WellPoint is paying $38 per enrollee, while companies buying HMOs have paid over $1,000 per enrollee, he said.
Blue Cross of California said it would file another plan within three weeks showing how it will meet its charitable obligations under state law in converting to for-profit status.