M-Plan might be ready to deal: State's No. 2 health insurer talks merger with Ohio firm

October 3, 2005

M-Plan Inc., Indiana's second-largest health insurer, has entered preliminary talks that could lead to a merger with Ohio's oldest medical insurer.

A source familiar with the discussions said they have centered on merging M-Plan's Indianapolisbased parent, The HealthCare Group LLC, with Cleveland-based Medical Mutual of Ohio.

The source, who asked not to be identified, said Medical Mutual would end up with the majority stake.

M-Plan, a nearly 20-year-old insurer owned partly by the city's Clarian and Community hospital systems, would maintain its identity and

continue to have

s u b s t a n t i a l

local management autonomy, according to the source.

The HealthCare Group includes M-Plan, a health m a i n t e n a n c e organization, and Encore Health Network, a preferred provider organization. Clarian Health Partners spokesman Jon Mills said the discussions have involved only M-Plan. He wouldn't say whether the discussions involved a merger.

"We're in preliminary discussions, exploring possible partnership opportunities with (Medical Mutual)," he said, adding that it was "way too premature for us to comment further."

Mills said any partnerships with outside entities "would have to enhance the quality and success that M-Plan has and continues to demonstrate."

Officials at Indianapolis-based M-Plan would not comment on Medical Mutual, but acknowledged they have been seeking ways to expand product offerings.

"We have a lot of competitive pressures and employer expectations, as all health plans do," said Andrew Stoner, director of marketing for M-Plan.

Medical Mutual and The HealthCare Group struck their first deal last week. They announced Sept. 29 that the Ohio insurer will begin using Encore's network starting Nov. 1.

The network for Indianapolis-based Encore encompasses Indiana and adjacent states. It includes 165 hospitals and 16,000 doctors.

Medical Mutual covers 30,000 people in Indiana, according to Encore Vice President Michelle Lobe. The company has 3.5 million customers, compared with 170,000 for M-Plan. While more than 200 employers have purchased M-Plan group plans, Medical Mutual has 31,000 group customers companywide.

The Ohio insurer has annual sales of $1.9 billion vs. M-Plan's $96.3 million. Don Olson, spokesman for Medical Mutual, said he could not comment about M-Plan.

"I don't know there's anything to discuss," he said.

Medical Mutual was founded 71 years ago. A merger would give it a significant Indiana presence in the back yard of Indianapolis-based WellPoint Inc., the nation's largest health insurer.

"It would be very beneficial to both [Medical Mutual and M-Plan]. The HMO model is not a growing model. ... M-Plan clearly has to grow," a source said.

Many analysts say about the only way to add significant market share is through acquisitions. Last week, WellPoint announced plans to buy New York's largest health insurer, WellChoice Inc., for $6.5 billion.

A recent study of the Indianapolis health care market by the Washington, D.C.-based Center for Studying Health System Change said pressure facing MPlan has intensified the last two years.

The study said the market has seen stronger competition from national health care plans such as Aetna and UnitedHealth. At the same time, WellPoint-through its Anthem Blue Cross Blue Shield subsidiary-has landed accounts of big employers, including Eli Lilly and Co. and Marsh Supermarkets Inc., fortifying its position as the state's largest health insurer.

Anthem has used its considerable clout to negotiate price discounts with hospitals and doctor groups. The study found that a number of employers that might have offered HMOs from insurers such as MPlan to supplement their offerings have turned to "national, multiproduct insurance carriers that typically offer premium discounts to employers that purchase coverage from a single carrier."

M-Plan would be attractive to a partner because it has a strong presence in Indiana and is "one of few [HMOs] that have been profitable," said Shawn Gibbons, of the Indianapolis Association of Health Underwriters. Gibbons said he was not aware of Medical Mutual's interest.

This year has been one of M-Plan's best, with profit before taxes already reaching $14 million, according to a letter sent to employees last month.
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