It took almost two months longer than expected, but Medicaid insurer Centene Corp. finally closed on its Health Net deal after winning approval from skeptical California regulators. The value of the deal, including debt, has been revised to $6 billion.
California's two health insurance agencies, the Department of Managed Health Care and the Department of Insurance, granted approval Tuesday, allowing Centene to complete the transaction formally on Thursday. However, California regulators imposed several conditions.
DMHC officials required (PDF) St. Louis-based Centene to keep Health Net's headquarters in California and to spend $340 million on measures that will improve community health and support the underserved. Some of those funds will go toward building a service center in an “economically distressed” part of the state, creating 300 jobs in the process.
The Department of Insurance, led by outspoken Commissioner Dave Jones, added further conditions. Jones required Centene to keep Health Net's individual plans on Covered California, the state exchange created under the Affordable Care Act, and to ensure networks of doctors and hospitals are adequate. He also said the costs associated with the merger and executive buyouts cannot fall to members in the form of higher premiums.
Health Net CEO Jay Gellert's compensation package from the merger, known as a golden parachute, was valued at almost $30 million in September and could be $55 million if there is a “qualifying termination.” Gellert will serve as a consultant to Centene “to achieve a smooth transition,” the company said.
Although Jones expressed reluctance in a statement, he said the deal will inject money into Health Net, which “has faced losses and declining market share” to Anthem, Blue Shield of California and Kaiser Permanente. The byproduct, he said, will be better competition in the commercial insurance markets.
Centene now stands as the largest Medicaid insurer in the country by membership and revenue. The combined company has about $37 billion in revenue, with almost two-thirds coming from state Medicaid agencies to provide health coverage to low-income people, and adding Health Net bolsters Centene's presence along the West Coast.
Centene CEO Michael Neidorff predicted during the 2015 J.P. Morgan Healthcare Conference that Centene would be one of the four remaining major health insurers. That prediction occurred about five months before Neidorff and Gellert sat down to discuss how the two companies could combine. Their deal came just before Anthem and Aetna announced their own acquisitions, which are still pending.