Safeguard Health Enterprises Inc., an operator of dental and vision care programs, said Wednesday that it has received state approval to acquire an insurance company, a move that company officials believe could eventually double its membership.
The proposed buyout of the unidentified insurer is all but complete, said Ronald I. Brendzel, a Safeguard senior vice president, and should be formalized by midsummer.
Terms of the acquisition, approved by the state Department of Insurance on Wednesday, will be announced at the close of the deal, he said. The purchase announcement was made during the firm's annual stockholders meeting.
Brendzel said the acquisition will enable Safeguard to expand its health-care options for clients.
Safeguard provides health maintenance organization-type dental and vision plans to its 1,200 clients, which employ 667,000 members nationwide. The addition of the insurance subsidiary, to be called Safehealth Life Insurance Co., would allow members to choose an indemnity program, a popular option that allows employees to continue using longtime family doctors.
"We are going to have the opportunity to offer a true dual-choice dental program," Brendzel said.
Traditionally, only about 25% of employees in a client company choose Safeguard's HMO plan, he said. The new indemnity option should draw twice as many members as the company now serves.
"They will be able to tell us what they need and we can offer it," Brendzel said. "We are very excited about it. This will allow us to be more aggressive."
Health-care providers and medical insurance companies, fighting over shrinking market shares, are increasingly considering consolidations and buyouts as a way to survive.
Mark Matheson, director of research for Newport Beach-based Cruttenden & Co. Inc., an investment banking firm, said that more health-care and medical insurance companies could be expected to follow Safeguard's strategy in the near future.
Instead of choosing from a hodgepodge of health-care suppliers, employers are moving toward providing employees with a single company with both HMO and indemnity plans, Matheson said.
HMOs such as PacifiCare Inc. and FHP Health Care generally offer full coverage with little or no co-payment. The patient, however, has to go to a prearranged medical center or doctor. Indemnity plans, such as Blue Cross of California, allow members to choose their own doctors, but generally require higher co-payments--averaging 20% of the bill.
Companies that offer both plans appear to be the wave of the future, Matheson said.
"I think one-stop shopping is what people want," Matheson said. "The (health) insurance environment is confusing enough."
Medical insurance companies are also finding ways to offer a variety of services under one roof.
Last week, US Facilities Corp. of Costa Mesa, a medical insurance specialist, bought an Oak Brook, Ill., company that reviews medical bills. That strategy, company officials said, will allow US Facilities to save money by not farming out such work.
And FHP, based in Fountain Valley, last month announced that it was expanding into the workers' compensation industry as a way to bring "24-hour" managed care to members.
"I think it's a good idea," Matheson said. Health-care companies "can offer more of a full service, a full plate of options to the employers."
Safeguard said that it has earmarked $5 million to fund Safehealth Life Insurance. Brendzel said that the company, with $13.4 million in cash and no debt, will not be hurt by the drain the new subsidiary would have on the parent.
He said there were no projections on how much the new subsidiary will help the company's bottom line.
Safeguard stock closed at $12 a share Wednesday on the over-the-counter market.