WellPoint's announcement that it was investing $4.9 billion to buy Medicaid insurer Amerigroup--the highest premium paid for a managed care company in 15 years--may be indicative of similar deals popping up throughout the industry; insurers are looking to diversify and expand into the ever-growing Medicaid market with a particularly watchful eye on dual-eligible patients.
Big insurers may set their sights on smaller managed care companies because they often have an advantage in gaining state contracts to cover the highly coveted group of dual-eligible patients based on their previous experience working with states' Medicaid programs, reported The Wall Street Journal.
The next targets likely will be Centene, Molina Healthcare and WellCare. Goldman Sachs estimated Centene and WellCare have a 30 percent to 50 percent chance of being purchased, and Molina has a 15 percent to 30 percent chance.
"There definitely will be more M&A activity in the industry now," Frank Ingarra, the head trader at NorthCoast Asset Management LLC, told Bloomberg. "The Supreme Court upholding President Obama's decision put these companies more in play. You have more and more people entering Medicaid. That's creating an opportunity for them to get more dollars."
That increased activity is expected largely because states continue to shift their Medicaid patients to private managed care insurance companies. Almost every state has moved young families on Medicaid to managed care and more than 10 states have moved some of their long-term care supports and services to private insurers, Forbes reported.
In fact, roughly $370 billion in contract opportunities may be up for grabs as Medicaid expands. "The Medicaid space is an area that is growing, David Windley, an analyst for Jefferies Group, told Bloomberg. "States are moving more populations to managed care and the dual-eligible populations are also attractive."