Wellpoint Moves to Buy CareFirst For $1.3 Billion
WellPoint Health Networks has agreed to pay $1.3 billion in a stock and cash deal to acquire CareFirst BlueCross Blue Shield, the largest health insurer in the Washington-Baltimore area, the Washington Post reports. Because CareFirst, which has 3.1 million members, is an "insurer of last resort" in Maryland, Delaware and Washington, D.C., insurance regulators and Congress would have to approve a conversion of CareFirst to for-profit status, which could take 18 months. Earlier this year, Maryland passed a law that eliminated a requirement that two-thirds of the Legislature approve of any conversion, which "ease[s] the process" for CareFirst. Also, the legislature passed a measure that would put the proceeds from a conversion into a fund until lawmakers decide how to spend it (Washington Post, 11/22). Under the terms of the deal, WellPoint would pay CareFirst $1.3 billion in cash and stock and CareFirst would make a payment to the states and Washington, D.C., to ensure that the transfer "benefits the public interest" (Mosk/Brubaker, Washington Post, 11/21). WellPoint will pay $450 million in cash and $850 million in stock (Selway, Bloomberg News/Los Angeles Times, 11/21). If CareFirst is converted to for-profit status, WellPoint would then acquire the insurer (Rundle, Wall Street Journal, 11/21). However, if CareFirst "kills" the deal because it receives a better offer, it would have to pay WellPoint $37.5 million. WellPoint has the right to match any other offer to acquire CareFirst. Also, CareFirst would not be responsible for the fee if regulators reject the deal (Salganik, Baltimore Sun, 11/22). WellPoint Chair and CEO Leonard Schaeffer said that acquiring CareFirst "strengthens WellPoint's presence in a core strategic market and further diversifies our business." If the deal is approved, WellPoint's membership would increase about 40% to 16.9 million.
The move to acquire CareFirst is the latest effort by WellPoint to move beyond its California base, the Wall Street Journal reports (Wall Street Journal, 11/21). WellPoint has already "snapped up" a number of Blue Cross health plans, the Baltimore Sun reports (Salganik, Baltimore Sun, 11/21). Last month Wellpoint announced plans to purchase RightChoice Managed Care Inc., the parent company of Blue Cross and Blue Shield of Missouri. That deal is expected to close next year (Wall Street Journal, 11/21). Also, in March, WellPoint acquired the former Blue Cross plan of Georgia (Washington Post, 11,21).
Before the Carefirst deal is approved, "months" of evaluations and hearings "lie ahead," the Washington Post reports. Some Maryland officials have already challenged the deal, saying it may adversely impact low-income residents (Washington Post, 11/22). The Maryland medical association, hospital association and House Speaker Casper Taylor (D) also have "expressed strong reservations" about the deal and said that CareFirst has "abandoned its original purpose" as a not-for-profit insurer. Calvin Pierson, president of the Maryland Hospital Association, said that CareFirst is already planning to leave the individual insurance market. "That's the kind of behavior we're likely to see more and more of if they're allowed to convert." However, CareFirst CEO William Jews, who would head regional operations for WellPoint if the deal is approved, said the $1.3 billion would "go to fill a lot of health care needs that are not being met in the community." (Baltimore Sun, 11/22).This is part of the California Healthline Daily Edition, a summary of health policy coverage from major news organizations. Sign up for an email subscription.