In the latest sign that the market for Medicare HMOs is heating back up, Humana last week agreed to acquire 50,000-member CarePlus Health Plans of Florida for roughly $450 million.
The addition of the privately held, Miami-based Medicare HMO would boost Humana's total Medicare enrollment to about 418,000 members in 15 states and Puerto Rico, and make it the overwhelmingly dominant player in the lucrative south Florida market, with 181,000 Medicare members.
The announcement comes just six months after life and health insurer Universal American Financial Corp., Rye Brook, N.Y., closed on its $98 million acquisition of Heritage Health Systems, a 16,000-member Medicare HMO based in Houston. And industry observers say more deals could be on the horizon.
"Medicare HMOs are poised for a comeback," said Allan Baumgarten, a Minneapolis-based healthcare consultant. "Insurers are once again seeing a strong business opportunity in Medicare, so I wouldn't be surprised to see this trend continue."
In the late 1990s, HMOs began quitting Medicare markets in droves, arguing that skimpy federal reimbursement increases were failing to keep pace with soaring medical costs, making the former Medicare+Choice program a money-losing venture. Other insurers that remained in the program began scaling back their benefits or charging higher premiums, deductibles and copayments.
But now, insurers are being lured back into the newly renamed Medicare Advantage program thanks to substantial payment increases and other incentives earmarked for them under the Medicare Modernization Act of 2003. This year alone, private Medicare plans got an average rate increase of 10.6%, and that extra cash has allowed them to expand their coverage areas, sweeten benefits and reduce premiums-all while still turning a profit.
Industry experts caution that the windfall may not last long. A report published last week by the journal Health Affairs questioned whether Congress, facing a growing budget deficit, would be forced to scale back payments as early as 2006. "What the federal government giveth, it can also taketh away," Baumgarten said.
Still, the improved funding has prompted many insurers to expand their role in Medicare Advantage in the coming year. Humana, in particular, announced earlier this month that it received CMS approval to offer Medicare PPOs in 14 markets and has hopes to get the go-ahead to enter another 15 markets.
The CarePlus acquisition is expected to close by Jan. 31, pending regulatory approval. Humana officials said the deal would add 15 cents to 18 cents to per-share earnings in the first year, bringing the company's 2005 projected earnings to $2.10 to $2.13 per share.
The acquisition includes CarePlus' pharmacy management business and 10 medical clinics, which Humana said it would operate through 2005. The clinics serve about 19,000 CarePlus members throughout Miami-Dade, Broward and Palm Beach counties.
The purchase price includes $408 million in cash and allows CarePlus' current owners to keep their insurance reserve fund, which comes to another $42 million. Humana said it plans to borrow about 75% of the money, with the rest coming from cash on hand.