Aetna Sheds Medicare Unit - Analyst Blog

By Zacks | January 24, 2013 AAA

U.S. health insurer Aetna Inc. (AET) announced divestment of its medicare subsidiary, Missouri Care, Inc. to WellCare Health Plans, Inc. (WCG) for an undisclosed amount.

Missouri Care has been operating in Missouri for more than 15 years and serves more than 100,000 members. The sell-off is seen as being related to Aetna's pending Coventry Health Care, Inc.,(CVH)  acquisition due to be completed in the middle of the year.

Upon acquisition Aetna will operate Coventry's Missouri Medicaid plan called Health Care USA.  If Aetna had continued to operate Missouri Care, the combined population served by both the units would cross the permissible limits granted by the state's Medicaid contracts.  Thus, this step had been taken by Aetna to comply with the state's rules which limit the number of members served by an insurer.

The deal is a net positive for Aetna since in exchange of foregoing 100,000, members served by Missouri Care, Aetna will gain access to 250,000 members served by Health Care USA.

On the other hand, WellCare will gain Missouri Care's extensive provider network of more than 50 hospitals and 9,500 physicians.

WellCare already has an active presence in Missouri serving 3,000 Medicare Advantage members and 13,000 Medicare Prescription Drug Plan members. Moreover, for smooth transition of the acquisition Missouri Care's CEO Pamela Johnson and employees at the Missouri Care business are set to join WellCare.

Another insurer Humana Inc. (HUM) also sells Medicaid plans in Missouri.

Aetna is looking forward to completing the $7.3 billion Coventry acquisition successfully. The transaction holds compelling strategic benefits for Aetna and will provide it with direct access to two of the most exciting business lines: Government programs and Commercial insured business.

We expect to get more color on the transaction during fourth quarter earnings scheduled to release on Jan. 31, 2013. The Zacks Consensus Estimate for the fourth quarter earnings is 96 cents per share, a penny lower than earnings of 97 cents reported in the year-ago quarter.

Aetna currently retains a Zacks Rank #3 (Hold).

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