Medicare Advantage is Alive and Well

It wasn’t long ago that many in the industry thought Medicare Advantage (MA) was on life support, a casualty of health reform. Today it’s viewed as a strategic imperative for publicly-traded companies, enrollment continues to exceed expectations, and we’re seeing unprecedented valuations for Medicare plans.

Last week WellPoint announced it was acquiring CareMore, a provider-owned MA plan in CA with about 55,000 members — for $800M. That’s about $15,000/member. For perspective, our good friend Carl McDonald at CitiGroup points out that in 2010 for $545M, HealthSpring was able to buy Bravo, a plan with almost twice as many MA members, plus 400,000 Medicare PDP lives. Further, HealthSpring is trading at only $3,500/MA member, while Universal American and WellCare are each under $5,000/MA member.

CareMore is more profitable than most given its clinic operations, and to some extent this was WellPoint’s response to United’s stealth campaign of buying up CA medical groups. But still. This deal alone will drive valuations skyward, and as a result, more plans will be looking for the exits.

And they’ll find buyers. HealthSpring has made no secret of its empire-building inclinations. Aetna and WellPoint have each said they desire more acquisitions to further expand their Medicare footprint. And Medicare revenue comprises on average about 25% of the public companies’ earnings. Consolidation will continue in Medicare. And it’s clear MA is alive and very well.

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