UnitedHealth to acquire Health Net's Northeast base

we're watching the state budgets closely to make sure that the revenues are matching our medical expenses; in those instances where that's not the case, we're going to work with the state on their ability to modify the makeup of the (Medicaid) service structure or the program or administrative requirements that we might have in place in order to save the state money," said Rick Jelinek, another executive vice president of UnitedHealth. FULL TEXT

As businesses and benefits consultants gear up for the annual health insurance renewal cycle that begins in earnest in October, Health Net customers in the tri-state region face a new variable in the pending sale of their carrier to UnitedHealth Group Inc.

Health Net Inc. is selling its Northeast customer base to an affiliate of UnitedHealth, the Minnesota-based parent company of Oxford Health Plans of New York Inc.

Health Net had a 12 percent decline in New York commercial members in 2008, leaving it with 205,000 at year end. Trumbull, Conn.-based Oxford Health is already one of the largest HMOs operating in New York state.

"The geographic and product fit are excellent, the terms are fair, and we expect our resources and cost structure to drive meaningful value for customers in this business," said Stephen Hemsley, a Fordham University graduate who is CEO of UnitedHealth, in a July conference call with investors.

The merger also combines the two insurance companies with the third and fourth worst complaint ratios in New York of 15 HMOs ranked by the New York State Department of Insurance. And Oxford Health agreed this year to pay $50 million to settle accusations by state Attorney General Andrew Cuomo that the company manipulated rates to overcharge insurance policyholders hundreds of millions of dollars.

The transaction was valued at $450 million, including an upfront $290 million payment by the UnitedHealthcare subsidiary of Minneapolis-based UnitedHealth Group and the rest paid out over two years. Health Net could receive additional bounties for commercial customers that remain with UnitedHealthcare after the deal closes, which is expected within a year's time.

"With smaller employers ... what we're seeing is a bit of a later cycle in decision-making - going past what would be the normal timeframe, which would be about around now where the 'employers are making decisions," said Gail Boudreaux, executive vice president of UnitedHealth.

Woodland Hills, Calif.-based Health Net had been shopping its Northeast and Arizona operations for almost a year, and had reportedly neared a deal with Tennessee-based Emblem Health, only to have the deal collapse over transaction terms. Health Net indicated it now plans to retain its Arizona operations, saying opportunities existed to exploit synergies with other health plans it offers in the West.

Health Net plans to take a charge in the third quarter to account for severance costs, but the companies did not immediately disclose the potential impact of the deal on their work forces in Fairfield County, Conn., where both had more than 500 employees at last report.

"We will continue to focus on serving our customers in Connecticut, New York and New Jersey during the transition period," said Paul Lambdin, president of Health Net of the Northeast, in a written statement. "We are committed to ensuring that our members experience a smooth transition to UnitedHealthcare's products and services."

The deal comes even as health insurers come under increased pressure due to declines in their investment portfolios and higher unemployment, forcing states to cover more residents on Medicaid even as states struggle to balance their budgets.

"Obviously, we're watching the state budgets closely to make sure that the revenues are matching our medical expenses; in those instances where that's not the case, we're going to work with the state on their ability to modify the makeup of the (Medicaid) service structure or the program or administrative requirements that we might have in place in order to save the state money," said Rick Jelinek, another executive vice president of UnitedHealth. "As the last resort, we can reduce our counties that we. operate in and I guess as a very last resort, a form of underwriting for us is to exit the market altogether, but where we sit right now, we're not contemplating that in any of our markets."