UnitedHealth Group last week agreed to acquire Definity Health Corp. for $300 million, underscoring a growing shift from tightly managed care toward alternatives that give consumers greater say over their medical spending.
Minneapolis-based Definity is a leading provider of consumer-driven health plans, which pair high-deductible insurance polices with personal savings accounts that employees use for out-of-pocket medical costs. The deal, which is expected to close this month pending regulatory approval, would give UnitedHealth 500,000 additional customers across all 50 states, including many who work for Fortune 500 and other large companies.
Analysts viewed the acquisition as a major vote of confidence for the future of consumer-driven healthcare, a relatively new concept that has become a centerpiece of the Bush administration's agenda to control healthcare spending and expand coverage to as many as 10 million uninsured Americans (Nov. 29, p. 32). With 22 million members nationwide, UnitedHealth has long been considered a bellwether for industry trends, analysts said.
"The train has left the station," said Ryan Stewart, senior financial analyst with Piper Jaffray. "(UnitedHealth) is making an aggressive move into consumer-driven healthcare. ... The industry is going to follow suit."
The concept got a shot in the arm a year ago when the Medicare reform law signed by President Bush created health savings accounts, which are like other account-based plans except contributions are tax-deductible and earn interest tax-free (Sept. 6, p. 28). Since then, most major insurers have rushed to offer HSAs and other consumer-driven plans, anticipating strong demand by employers desperate for an antidote to soaring premiums.
PacifiCare Health Systems, for example, agreed in September to acquire American Medical Security Group, which sells high-deductible plans including HSAs, for $532 million (Sept. 20, p 16). And last week, the company announced plans to buy the 140,000-member group health insurance unit of Pacific Life Co., Newport Beach, Calif., to boost its presence in the small-group market, where demand for consumer-driven plans is burgeoning.
Stewart predicts most of the remaining "pure play" consumer-driven firms will be snapped up by large insurers within 12 months. Such vendors include Destiny Health, Lumenos, MyHealthBank, Vivius and HealthAllies. Another player, HealthMarket, was bought in September by insurer UICI, which targets the individual market.
While many insurers will roll out HSAs for the first time in 2005, UnitedHealth got a jump on the market in November 2003, when it acquired health-account pioneer Golden Rule Insurance Co. for $495 million. By Jan. 1, 2005, the company will have 850,000 members enrolled in HSAs or its original consumer-driven product, iPlan.
The acquisition of Definity would boost UnitedHealth's consumer-driven membership to 1.3 million and add about a penny per share to 2005 earnings, the company said. Privately held Definity expects 2005 revenue of $100 million. Its chief executive officer, Tony Miller, will manage UnitedHealth's iPlan and Definity products.
Supporters tout consumer-driven plans as a solution to rising healthcare costs, saying consumers will use medical services more judiciously if they have to spend their own money. But critics say the plans will simply shift costs to workers and benefit healthy, higher-paid employees to the detriment of patients with chronic conditions.
According to a survey released last month by Mercer Human Resource Consulting, 26% of large employers are likely to offer a consumer-driven plan within two years, up from the 4% that offer one now (Nov. 29, p. 8).
But UnitedHealth isn't waiting. The company has opened its own bank, Exante Financial Services, which next year will issue debit cards that members can use to tap into their HSAs. In addition, it will cover all 30,000 of its employees exclusively through iPlan, starting Jan. 1. Last year, employees could choose between iPlan and two managed-care options.
Definity is the latest in a string of recent acquisitions for UnitedHealth, which, like other insurers, has felt pressure to "buy" enrollment at a time when slow employment growth is generating few new members.
