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WellPoint pays big to tap fast-growing Medicare market

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Analysts raised their eyebrows at the $800 million reportedly paid by WellPoint Inc. to acquire a West Coast Medicare plan, but with the commercial health insurance business stagnating, Medicare is vital to WellPoint’s future growth.

Indianapolis-based WellPoint will acquire California-based CareMore, which operates senior-focused medical clinics and covers about 55,000 seniors under the Medicare Advantage health plan, in which the federal government contracts with private health insurers to cover seniors’ health care. CareMore has doubled its customer rolls in the past four years.

“WellPoint acquired an attractive business that has grown substantially in the past few years, but they paid up to do it,” Citibank analyst Carl McDonald wrote in a June 8 research report about the deal. He and other analysts noted that the reported purchase price, which WellPoint would not confirm, punches out to nearly $15,000 per insured customer.

Previous acquisitions of Medicare Advantage plans have been priced at an average of less than $6,000 per insured member.

Of course, CareMore also operates a series of senior-focused medical clinics in six counties in California, as well as newer operations in Arizona and Nevada. WellPoint said it will invest any profits from CareMore—which analysts estimated at $30 million to $50 million annually—into launching more clinics in 2012.

Also, WellPoint can tap the experienced managers at CareMore to help grow its heretofore lackluster Medicare Advantage business, noted Barclays Capital analyst Joshua Raskin.

WellPoint provides health insurance to 33 million Americans—more than any other company. But it has only about 550,000 members in its Medicare Advantage plans, ranking fourth nationally. According to analysts’ estimates, Medicare Advantage accounts for less than $5 billion of WellPoint’s nearly $60 billion in annual revenue.

WellPoint CEO Angela Braly acknowledged during a February conference with investors that WellPoint has struggled at capturing Medicare customers in the past, and signaled the company was likely to make an acquisition to help it grow in that segment.

“We think Medicare, demographically, is an opportunity for us. We haven’t captured the market share that we could there,” WellPoint CEO Angela Braly told investors in February.

She also laid out WellPoint’s projections that, by 2015, employer-sponsored plans nationally will actually lose 5 million members while Medicare plans add 19 million members.

Raskin, writing in a June 8 research note, said the CareMore management team should be able to help WellPoint do a better job capturing that growth.

He wrote that WellPoint “has spoken on numerous occasions about pressures on its earnings in that [Medicare Advantage] segment in recent years. It appears that there has been a lot of volatility in that segment’s contribution historically. We believe that the CareMore team will bring much needed experience, strategy and operational focus.”

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  • well of course...
    ...Anthem wants to profit off Medicare, like any good crony capitalist company they want to suck as many $$$$ off the govt. teat as possible, the don't call it WELL-fare for Repuglicans fer nothin'...it's who they are, it's what they do!

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