WellPoint May Buy John Hancock Unit
Moving a step closer to its goal of becoming a national force in health care, WellPoint Health Networks Inc. is near an agreement to buy the health insurance unit of John Hancock Mutual Life Insurance Co., sources familiar with the talks said Thursday.
Sources said the deal could be announced in a few days, but that no final agreement had yet been reached. The purchase price could not be determined.
The John Hancock unit oversees health-care services for roughly 2 million people--mostly at large corporations--while WellPoint currently has 4.3 million, the majority enrolled in its CaliforniaCare and Blue Cross of California health plans.
The acquisition, which follows WellPoint’s $380-million purchase earlier this year of a Massachusetts Mutual Life Insurance Co. health subsidiary, would help expand WellPoint’s business outside the California market. Because of stiff price competition and the large percentage of people already enrolled in managed-care plans in California, virtually all of the managed-care firms headquartered here are seeking mergers or acquisitions in other states.
Though the deal would boost WellPoint’s membership by nearly 50%, the 2 million additional members are largely in indemnity insurance plans rather than managed care.
That makes them less attractive initially to a company like WellPoint because employers have been moving workers out of such plans into HMOs. But WellPoint sees potential in shifting such members into its own managed-care plans.
The Hancock unit has had lackluster profit but is of considerable strategic importance to WellPoint, sources said. Hancock has its largest blocks of business in the New York-New Jersey metropolitan area, Georgia and Texas.
“The strategy is to be a national company, but we’re looking for a concentration of members in certain areas,” said one WellPoint executive.
That concentration of members helps a health insurer sell its programs to larger employers and gives it more leverage to negotiate discounts in doctor and hospital fees.
Executives at WellPoint’s headquarters in Woodland Hills and Hancock’s main offices in Boston declined to comment on the proposed transaction.
WellPoint’s shares closed unchanged at $31.125 on the New York Stock Exchange.
WellPoint executives have said previously that a big part of their growth plan is to acquire health insurance operations that have the bulk of their members in traditional indemnity insurance programs, as the Mass Mutual unit did and Hancock does.
Large, broad-based insurers generally have had difficulty competing with managed-care companies as more Americans enroll in HMOs and other health plans with tighter restrictions on access to doctors and services.
WellPoint’s plan is to use these insurance companies as a way to gain access to large corporate accounts.
