Aetna to buy Coventry, expand Medicare/Medicaid business

HARTFORD, Conn., Mon Aug 20, 2012 – Health insurer Aetna Inc. said on Monday that it would buy rival Coventry Health Care Inc. for $5.6 billion to increase its share of U.S. government-backed Medicare and Medicaid business.

The purchase, which will add more than 5 million members to Aetna’s ranks, comes just weeks after rival WellPoint Inc struck a deal to buy Amerigroup Corp in a major expansion of its Medicaid business, administering the government’s health plan for the poor.

Bankers and investors see the wave of health insurer consolidation accelerating further as the United States moves to implement President Barack Obama’s healthcare overhaul.

The U.S. health reform law aims to provide coverage for 16 million more Americans through privately run insurance exchanges in each state and will expand Medicaid eligibility for an additional 16 million people by raising limits on household income.

“Integrating Coventry into Aetna will complement our strategy to expand our core insurance business, increase our presence in the fast-growing government sector and expand our relationships with providers in local geographies,” Aetna Chief Executive Officer Mark Bertolini said in a statement.

Under the deal, Aetna will pay $42.08 per share – $27.30 in cash and 0.3885 of its common shares. That is a 20.4 percent premium over Coventry’s closing stock price of $34.94 on Friday.

Aetna said the purchase would help lift its share of revenue from its government business to more than 30 percent from 23 percent.

It will help Aetna add nearly 4 million medical members and 1.5 million Medicare Part D members. Medicare Part D is a federal program that reduces prescription drug costs for beneficiaries of the government plan for the elderly.