Aetna to acquire Coventry, a Medicare and Medicaid insurer

A woman strides past the Hartford, Conn., headquarters of Aetna, Inc.
(Bob Child / Associated Press)

Health insurance giant Aetna Inc., trying to capitalize on growing enrollment in Medicare and Medicaid, has agreed to acquire Coventry Health Care Inc. for about $5.7 billion in cash and stock.

The nation’s third-largest health insurer, based in Hartford, Conn., said the Coventry deal will enable it to add more than 5 million new members, many of them in faster-growing Medicare Advantage and Medicaid managed-care plans. Federal and state officials are increasingly turning to private insurers to run government-financed health programs in hopes they can better control rising medical costs.

Other insurers have been striking similar deals, seeking to take advantage of Medicare’s growth as more baby boomers retire and the federal healthcare law adds an estimated 15 million Americans to the Medicaid rolls starting in 2014. Last month, WellPoint Inc. agreed to acquire Medicaid insurer Amerigroup Corp. for $4.9 billion.

Aetna said the Coventry acquisition should boost its share of revenue from government health plans to more than 30%, from 23% now. The deal is worth $7.3 billion including the assumption of debt, the companies said. Coventry, based in Bethesda, Md., also sells health plans to individuals and employers.

Investors cheered Aetna’s move, bidding up its shares $2.14, or 5.6%, to $40.18 in Monday trading.

“The transaction boosts Aetna’s footprint in government programs and adds scale to its commercial operations, which we view as strategically important ahead of the expected implementation of exchanges and health reform starting in 2014,” said Joshua Raskin, an analyst at Barclays Capital.

Aetna is paying $42.08 per share for Coventry, whose stock soared 20.3% in Monday trading to $42.04.

The deal is subject to regulatory approvals and is expected to close in mid-2013.