UNITED HEALTHCARE: Announces $6 Billion Merger With Humana

      United HealthCare Corp., the Minnesota-based managed care giant, yesterday announced that it is merging with "rival" Humana Inc. of Kentucky in a $6 billion deal that will create "one of the nation's most powerful players in the managed care industry." The AP/Minneapolis Star Tribune reports that the two companies are among the nation's "ten largest health care corporations." United's headquarters will stay in Minnetonka, MN, and William McGuire, will keep his CEO and chair titles. The AP/Star Tribune reports that the merged entity will "the nation's largest publicly held health plan company" (Howatt/Feyder, 5/29). The long-term effects of Humana's sale to United will not be felt in Kentucky for "four to seven months," said Humana spokesperson Tom Noland. The Lexington Herald-Leader reports that "[w]hile United HealthCare has pledged to keep 'a significant work force' in Louisville, job cuts are likely." Humana is Kentucky's sixth-largest corporate employer and has played a key role in the state's health care reforms, the Herald-Leader reports. Humana CEO Greg Wolfe told Kentucky's insurance commissioner that his company would participate in the state's individual market beginning this summer (Fernandez/Sharp/Butters, 5/29).

10 Million Strong
      The Wall Street Journal reports that "the combined company will have significantly heightened bargaining power in negotiating with hospitals and doctors," a factor the companies hope "will boost profits and possibly even drive down medical costs to patients." The new company will cover 10.4 million people nationwide, bringing in annual revenues of $27 billion, according to the Journal. "If you have a million members instead of 500,000, people will listen to you a lot more attentively," said Kenneth Abramowitz, an analyst with Sanford Bernstein & Co. And it follows that "hospitals and doctors will be willing to offer more enticing price concessions in order to treat more patients." The Journal reports that "United is hoping to achieve cost savings of 3% to 5% of its $4.8 billion in annual operating expenses, or nearly $200 million," and to save another $200 million in total medical care costs through renegotiated contracts, according to United officials. The Journal notes that the companies make a good couple because they are both "regarded as industry leaders in efforts to promote quality-of-care among the doctors who participate in their health care plans" (Burton/Lipin, 5/29).

Terms Of Engagement
      Under yesterday's agreement, the New York Times reports that United will "exchange one of its shares for two shares of Humana and assume $850 million of Humana's debt." On the New York Stock Exchange yesterday, United shares fell $1.625 to $62.50 and Humana's rose $3.625 to $29.875. The Times reports that based on United shares' Wednesday closing price of $64.125, the "stock swap" is valued at $5.5 billion (Freudenheim, 5/29).

From The Mountains, To The Oceans
      Humana will strengthen United's "presence in several key states, especially Illinois, Wisconsin, Texas, Florida and Ohio," according to the Star Tribune (5/29). The Chicago Tribune reports that the deal will "change the competitive health care landscape in Illinois," as United is currently the state's second largest HMO and Humana is the third largest. "The combination will knock Blue Cross and Blue Shield of Illinois ... out of first place," and in a first, the state's "HMO markets will be dominated by a publicly traded, for-profit company based elsewhere," the Tribune reports (Buck/Graham, 5/29). The Dallas Morning News reports that the two companies serve over 1.5 million Texas members and that the "merger caps a hectic year of repositioning among the ten largest [HMOs] serving North Texas" (Ornstein, 5/29). In Ohio, the merger "will result in Greater Cincinnati's largest HMO changing hands twice in less than a year," the Cincinnati Enquirer reports. The deal "will affect about 380,000 Tristate residents covered by United, Humana or ChoiceCare -- the once-independent HMO that Humana acquired last year" (Bonfield, 5/29). The merger will affect 1.4 million Humana members in Florida and about 900,000 of United's in the Sunshine State. Gary Frazier of Bear Stearns & Co. said the deal would create the nation's third largest health plan in terms of enrollment, second only to Kaiser Permanente and Blue Cross and Blue Shield (Miami Herald, 5/29).