WellPoint to Buy Health Unit From Insurer

Wasting little time after an aborted merger attempt, WellPoint Health Networks on Monday said it is acquiring the health insurance business of Massachusetts Mutual Life Insurance for about $380 million in cash.

The merger would expand WellPoint’s operations into all 50 states, giving it 4 million members and making the Woodland Hills-based company the second-largest publicly held managed-care firm, after United Healthcare Corp. It would diversify WellPoint’s business outside the fiercely competitive California market, where most of WellPoint’s current 2.8 million members are.

The acquisition follows the collapse last month of WellPoint’s proposed $1.6-billion acquisition of Health Systems International, the Woodland Hills-based parent of the Health Net health maintenance organization. That deal soured amid a dispute between WellPoint Chairman Leonard D. Schaeffer and Health Systems Chairman Malik M. Hasan over management control issues.

Massachusetts Mutual, based in Springfield, Mass., has health-care operations in 50 states, including 200,000 members in California. Most of its membership is in 10 states, including Illinois, Massachusetts, New Jersey, New York and Texas.

The acquisition also includes 10 million members in managed pharmacy benefit programs, 500,000 members in dental plans and 600,000 members in group life and disability programs.

Schaeffer said the acquisition provides opportunities for cost savings and a platform for future acquisitions. WellPoint, the managed-care subsidiary of Blue Cross of California, has said that acquisitions or alliances with other Blue Cross and Blue Shield plans are a key part of its national expansion strategy.

Massachusetts Mutual’s health-care operations are largely in traditional “indemnity” insurance and less-restrictive types of managed-care plans known as preferred provider organizations. Schaeffer said WellPoint is not interested in acquiring HMOs, a health insurance model highly popular in California that tightly controls patients’ choices of doctors and hospitals.

“We’re not looking for a Swiss watch-operated HMO where we would have to pay top dollar,” Schaeffer said.

Schaeffer says WellPoint’s strategy is tied to the fact that the majority of Americans have not yet joined HMOs. WellPoint is scouting for traditional insurers that have little HMO business but are looking for a way to expand such membership.

Schaeffer said WellPoint had been negotiating with Massachusetts Mutual even while it pursued Health Systems. He said the company had built a database of about 1,400 insurers with indemnity health plans that were possible acquisition targets and that Massachusetts Mutual was at the top of the list.