Looking to seize on the massive expansion of Medicaid, Blue Shield of California said it has agreed to acquire Monterey Park health plan Care 1st for an undisclosed sum.
Until now, nonprofit Blue Shield hasn't participated in Medi-Cal, the state's Medicaid program for lower-income people.
As a result, it has missed out on the program's growth to 11.3 million Californians as part of the expansion under the federal Affordable Care Act.
With Care 1st, the San Francisco insurance giant said Monday it will gain 473,000 Medicaid managed-care members as well as 46,000 Medicare patients.
The majority of Care 1st HMO members are in Southern California, but it also covers patients in Arizona and Texas.
Major health insurers across the country have made similar deals to grab more of this growth in Medicaid.
Companies that specialize in the Medicaid managed-care market, such as Woodland Hills insurer Health Net Inc., have seen their shares soar this year thanks to the health-law expansion.
In an interview Monday, Blue Shield Chief Executive Paul Markovich said his company has been looking for a way to break into Medicaid for some time and Care 1st was the ideal fit.
"When there are over 11 million people in California getting their insurance through the Medicaid system, it's really a big gap to not be in that line of business at all," Markovich said.
Overall, Blue Shield has 3.4 million members now and $10.8 billion in annual revenue.
Care 1st is a privately owned health plan that was founded in 1994 by a group of medical providers and hospitals.
Anna Tran, chief executive of Care 1st, said in a statement, "We look forward to working together with the Blue Shield team in order to further the Affordable Care Act's universal healthcare objectives."
Neither company disclosed terms of the deal. Blue Shield said it is drawing on some of its $4 billion in reserves for the all-cash transaction.
The deal is still subject to numerous regulatory approvals, and it's expected to close in the third quarter of 2015.
Blue Shield said it could continue to operate the businesses in Arizona and Texas under the Care 1st name. Markovich said no decisions have been made yet on how to proceed with those operations outside California.