WellPoint could grow during tough time for health insurers

November 24, 2008
The health insurance industry — hurt by falling profits and threatened by Democratic reform bills — could see another wave of consolidation.

And at least one analyst says that plays to the advantage of big companies such as Indianapolis-based WellPoint Inc. and Minnesota-based UnitedHealth Group.

"I think the WellPoints of the world and the Uniteds of the world get bigger," said health care stock analyst Les Funtleyder. He's the author of a forthcoming book titled, "Healthcare Investing: Profiting from the New World of Pharma, Biotech, and Health Care Services."

"Bigger is better, in general, in health care," Funtleyder added. "From an insurance point of view, the more people you have under coverage, the more actuarially predictable your business is, and the more market share you have for contracts [with hospitals and doctors]."

The last wave of consolidation worked out remarkably well for Indianapolis, which saw local firm Anthem Inc. turn into WellPoint, which insures more Americans than any other health benefits company. UnitedHealth is the largest health insurer by revenue.

Anthem's buying spree mainly involved acquiring other operators of state Blue Cross and Blue Shield plans. Those opportunities dried up a few years ago, but more seem to be emerging now. The "Blues" plan in New Jersey has filed to convert into a for-profit company-a must if it is ever going to merge with a company like WellPoint.

Other acquisition targets could include publicly traded companies, such as California-based Health Net, which has said it's for sale, Funtleyder said. In the third quarter, every publicly traded health plan saw profits fall, according to an analysis by AMNews, a health care trade journal.

WellPoint CEO Angela Braly, during an interview Nov. 18 with CNBC, said, "There are opportunities that arise in difficult times, where companies need scale, like the scale that we have at WellPoint. We have a very strong brand, with our Blue Cross and Blue Shield brand. So it makes us a very attractive place in a difficult time."

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