Dive Brief:
- WellCare Health Plans said Tuesday it will buy Meridian Health Plan for $2.5 billion. The deal, which will amplify WellCare's presence in the growing Medicare Advantage (MA) market, is expected to close by the end of the year.
- The acquisition brings Meridian's pharmacy benefit manager, MeridianRx, in-house, providing WellCare with a base to compete with other insurers growing their PBM businesses through acquisitions and partnerships.
- After the deal, the combined company will total $23 billion in annual revenue and count 5.4 million members, WellCare said. That includes more than 1.1 million Medicaid, MA and health insurance marketplace members.
Dive Insight:
WellCare's acquisition of Detroit-based Medicaid insurer Meridian will cement the health plan's foothold in the Medicaid and MA markets in Michigan, Illinois, Indiana and Ohio, bringing its Medicaid membership up to about 4.3 million.
While WellCare's presence in the Medicaid market is strong, the company has recently shifted its focus to growing MA membership, following the industry trend of pursuing shares of the stable MA market while opting out of the far more volatile Affordable Care Act exchanges.
The insurer boosted its MA membership by about 120,000 last year when it acquired Universal American Corp., helping bring its total MA membership to 506,000 at the end of the first quarter of fiscal year 2018 — up 42.1% year-over-year. With the Meridian acquisition, WellCare will reel in an additional 27,000 MA members.
Rapid growth in the MA market is expected to continue as rates and membership increase. MA closed out 2017 with nearly 21 million enrollees — a nearly 8% increase from 2016 — and the Kaiser Family Foundation expects Medicare enrollment will increase to 80 million people by 2030. While MA currently makes up about one-third of those members, UnitedHealthcare predicts half of all Medicare beneficiaries will eventually have an MA plan.
It's worth noting, however, that there are still only a handful of payers dominating the MA market, namely UnitedHealth Group and Aetna, with the former owning nearly one-quarter of market share. WellCare's total MA membership count after the Meridian acquisition will still be dwarfed by Aetna's share of the market, which grew by almost 250,000 members in Q1 2018 to a total of about 1.72 million.
The Meridian deal will also give WellCare a leg up in growing its newly-acquired pharmacy management arm. While the rest of the industry watches Aetna's proposed merger with CVS and Cigna's pending Express Scripts acquisition, WellCare will have an in-house PBM in MeridianRx through which it has an opportunity to grow its pharmacy management capabilities.
The acquisition also likely means a loss of business for CVS. WellCare is one of the company's largest clients, accounting for 4.5% of CVS' PBM lives. While the insurer signed on with CVS, soon to be a direct competitor, through 2020, consultants with Leerink Partners said in a recent note that they do not see the loss of WellCare being a significant threat to CVS. However, Leerink Partners noted that "the continued consolidation in the industry is likely to increase DOJ scrutiny."
Another deal reportedly in talks would look to capitalize on MA's growing popularity. Walmart is said to be discussing an acquisition or merger with Humana, the second-largest provider of MA plans.