Although health insurer mergers have been shot down by regulators in recent years, Centene is hoping its proposed acquisition of WellCare will be small enough to fly under the radar while helping to bolster its lead in the Medicaid managed care market and shore up its position in the Medicare Advantage sector.
In late March, St. Louis-based Centene announced it was acquiring WellCare Health Plans, based in Tampa, in a deal valued at $17.3 billion. The combined companies would have about 22 million members spread across all 50 states.
The move “gets your overhead down, so you can be more efficient. When you talk to government, the fact that you have that kind of scale is important,” Centene CEO Michael Neidorff told the Wall Street Journal.
Centene became the country’s largest Medicaid managed care company two years ago. The acquisition of WellCare would give the company a total of 12 million Medicaid members. Centene is also the top insurer in the ACA exchange market, selling plans in 20 states.
“It does suggest significant consolidation in the Medicaid market in particular,” and would give states one less insurer to contract with, says Jack Hoadley, an analyst with Georgetown University’s Health Policy Institute.
WellCare might not bring the best reputation to Centene. In 2011, five of the company’s top executives, including CEO Todd Farha, were indicted and later convicted for concocting a $40 million Medicaid fraud scheme.
“That was a pretty rocky phase. The reputation they have in at least some consumer circles is less than top notch,” says Hoadley.
In 2018, WellCare had about 3% of the Medicare Advantage market. That was far behind UnitedHealthcare, which has about a quarter of the MA market, and Humana, which has a 17% share. Centene currently has about 400,000 MA customers.
In December, WellCare purchased Aetna’s standalone Medicare Part D plans as part of Aetna’s merger with CVS.
With the merger, Centene is taking on more members, which will generate more premium dollars and spread the company’s risk, says Christopher J. Kutner, a partner in the law firm Rivkin Radler.
Centene has acquired a number of companies in recent years, and with each acquisition they “acquire more data so they are better able to manage wellness and head off the high cost of medical care,” Kutner says.
Whether federal antitrust regulators will approve the deal is a real question. They may require divestitures in certain states where Centene and WellCare’s business overlaps, such as Florida and Georgia.