A major California health insurer wants to ensure it gets a piece of the growing Medicaid market as the state expands Medicaid eligibility to more low-income residents.
Blue Shield of California, one of the four largest insurance carriers in the state by revenue (PDF), signed a definitive agreement Monday to buy Care1st Health Plan for an undisclosed amount of cash. The deal is expected to close in the second half of 2015, pending regulatory approval. It could prove a harbinger of more such deals in other Medicaid expansion states, one consultant forecasted.
Blue Shield covers 3.4 million people, mostly in the commercial market, and does not have a Medi-Cal, or Medicaid, plan. Care1st, however, has a large Medicaid business that is expanding rapidly.
Medicaid represented 68% of Care1st's revenue as of Sept. 30, according to documents filed with the California Department of Managed Health Care. Overall, Care1st recorded a $30 million profit on $1.2 billion of revenue in the first nine months of 2014. The insurer, which was founded by doctors in 1994, has 473,000 Medicaid members with most in Southern California.
“This really helps Blue Shield get a bigger critical mass,” said Steve Valentine, president of the Camden Group, a healthcare consultancy in El Segundo, Calif. “It puts them in a strong position with Medi-Cal, which is huge. And it also helps them with their delivery network.”
Blue Shield CEO Paul Markovich said in a release that acquiring Care1st was “the ideal way for us to not only enter a new market, but also to help transform it together.” The insurer has the financial wherewithal to try the venture; last year, Blue Shield posted $171 million of profit on $10.8 billion of revenue and covers 3.4 million people.
It's possible other large health insurers, especially those with big footprints in states that have already expanded Medicaid, may consider making similar acquisitions, Valentine said. And smaller, regional Medicaid managed-care companies may be highly receptive to those offers depending on their situation.
“I think you'll see more Medicaid plans sell,” Valentine said. “These smaller plans need a bigger platform.”
California's Medicaid program covers 11 million people—an increase of about 3 million since the Patient Protection and Affordable Care Act went into effect.
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