Mitt Romney’s campaign pledge to repeal Obamacare would be unhealthy for Aetna (AET). The health-insurance company said Monday it is paying $5.7 billion to acquire Coventry (CVH).
Obamacare, which would make 16 million to 20 million new Americans eligible to enroll in Medicaid, is the growth Aetna is chasing through its deal with Coventry.
Companies like Aetna and Cigna — which profit from the three major health-care segments of commercial health insurance, Medicare and Medicaid — have seen a slowdown in the latter two segments after the financial crisis forced businesses to lay off millions of employees, which reduced the number of commercial health insurance customers.
“Their state of affairs at the time was a sluggish economy where employers were laying off employees, which meant that their membership was declining,” said David Windley, a health-care analyst at Jefferies. “Their growth opportunity in commercial was limited and, to the extent that there was a growth opportunity, it was deferred down the road to when they would expect to see an economic recovery.”
Romney’s criticism of Obamacare is one of his cornerstone campaign platforms.
The former Massachusetts governor’s promise, if elected president, is to issue an executive order to distribute Obamacare waivers to all 50 states and then work with Congress for a full repeal.
A repeal of Obamacare would strike down the strategic rationale behind the Aetna and Coventry transaction, leaving larger companies like Aetna, Coventry and Cigna (CI) facing stagnant commercial growth due to a still-lethargic U.S. economy.
After the Patient Protection and Affordable Care Act passed in 2010, health-care companies saw government entitlement programs Medicare and Medicaid as growth sectors for the industry.
Cigna, which had been looking to increase its Medicare footprint, acquired HealthSpring in October 2011. The deal added $340,000 Medicare Advantage customers and another 800,000 tied into HealthSpring’s Medicare prescription drug business.
In July, Wellpoint (WLP) announced a $4.9 billion acquisition of managed-care company Amerigroup (AGP), which had 4.5 million customers of state-sponsored health-care programs.
Aetna’s Coventry acquisition would immediately add 5 million members, with 250,000 on Medicare and 930,000 on Medicaid, according to Bloomberg.
“Integrating Coventry into Aetna will complement our strategy to expand our core insurance business, increase our presence in the fast-growing government sector and expand our relationships with providers in local geographies,” Aetna CEO Mark T. Bertolini said in a statement.
Romney’s pledge, if elected, to deep-six Obamacare would face an uphill battle in Congress. The House has failed to repeal Obamacare more than 30 times in 2012.
But if Romney were successful, Aetna and other insurers that have made bets on growth from Obamacare would stand to lose much more than members.
via The Street