The deal, expected to close in the first quarter of next year, marks WellCare's entrance into the Arizona Medicaid managed-care market. WellCare had 2.43 million Medicaid members as of June 30, and more than half of that total resided in Florida and Georgia, two states that did not expand Medicaid under the Affordable Care Act. Arizona is one of 31 states that has expanded Medicaid eligibility to more low-income people.
Care1st Arizona is a subsidiary of Care1st Health Plan, a California-based insurer that Blue Shield of California controversially bought for $1.25 billion last October. Care1st Arizona provides Medicaid coverage to 112,000 people in the state's two largest counties and also has a small Medicare Advantage special needs plan that covers 2,000 people.
WellCare executives said in February that the company had $1.25 billion of cash reserves to spend on transactions. WellCare's first deal occurred that same month when it bought Advicare Corp., a Medicaid managed-care company in South Carolina. However, WellCare did not acquire Advicare's plan that provides coverage to low-income residents who are dually eligible for Medicare and Medicaid. That plan has since terminated its business (PDF) in South Carolina, leaving people to find new coverage.
Care1st Arizona is expected to add about $400 million of premium revenue to WellCare, according to Wall Street projections. WellCare, which also sells Medicare Advantage and Medicare Part D prescription drug plans, had $3.6 billion of revenue in the first half of this year.
Chris Rigg, an analyst at Susquehanna Financial Group, said in a note to investors that Care1st Arizona's contract will expire in the fall of 2018, and the rebid process likely will start next year. WellCare is “well-positioned to maintain, if not expand, its current footprint if it maintains Care1st's performance levels,” he said.
WellCare recently signed new Medicaid contracts with Nebraska and Georgia, but the company has encountered problems in other states. Iowa kicked out WellCare from its new Medicaid privatization program, citing disclosure and ethics lapses. WellCare also lost out on Pennsylvania's managed long-term services and supports. WellCare is appealing the Pennsylvania decision.