UnitedHealth expands in Northeast

WOODLAND HILLS, Calif.—UnitedHealth Group Inc.'s acquisition of Health Net Inc.'s operations in the Northeast may give it a stronger foothold in that market, but it is unlikely to stifle competition there, health insurance analysts say.

In a cash deal valued at approximately $510 million, Minnetonka, Minn.-based UnitedHealth will acquire the New York, New Jersey and Connecticut operations of Woodland Hills, Calif.-based Health Net, as well as the exclusive rights to renew that business with Health Net's 578,000 covered lives in that area (see box). Expected 2009 revenues for these operations are approximately $2.7 billion.

Health Net executives said the sale, which is subject to regulatory approval, is the end result of a strategic review the insurer began last November, looking at its Northeastern and Arizona businesses.

“If Health Net were a force in the region, they probably would have held on to the business,” said Neal Freedman, an analyst at Standard & Poor's Corp. in New York. By freeing up the capital that was tied up in its Northeastern operations, Health Net will have the opportunity to grow in other markets, he said.

In addition to its operations in Arizona, which it has decided to retain, Health Net operates in California and Oregon.

Health Net's decision to leave the Northeast makes sense because “it's a very competitive market with a lot of regulation,” said Stephen Zaharuk of Moody's Investors Service. “Without a lot of volume, they weren't able to negotiate good deals with hospitals and doctors.”

By contrast, UnitedHealth has had a fairly strong presence in the region since acquiring Trumbull, Conn.-based Oxford Health Plans Inc. in 2004, Mr. Zaharuk said.

Sally Rosen, managing senior financial analyst for the health insurance division at A.M. Best Co. Inc. in Oldwick, N.J., said the acquisition has the potential to expand UnitedHealth's regional membership in the three states, particularly if the commercial membership from Health Net moves to UnitedHealth upon renewal.

UnitedHealth currently has 2.6 million commercial members in the region, according to a company spokesman.

“That said, the region is already very competitive, particularly in the New York City metro market, and UnitedHealth is already a formidable player in the commercial market with its UnitedHealth and Oxford Health operations, which have scale and a provider network across the area,” the spokesman said.

Though industry analysts didn't think the acquisition would pose a major threat to competition in the market, the employer community expressed some concern.

“When consolidation like this happens in the market, it always has a negative impact on competition in the region,” said Laurel Pickering, executive director of the New York Business Group on Health. “The number of health plans in our market is shrinking, and it is a concern to the business community. Less competition means less incentive to be the best in the market.”

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