As businesses and benefits consultants gear up for the annual health-insurance renewal cycle that begins in earnest in October, Health Net customers in Connecticut face a new variable in the pending sale of their carrier to the corporate parent of Oxford Health Plans.
Health Net Inc. is selling its Northeast customer base to an affiliate of UnitedHealth Group, the Minnseota-based parent company of Oxford Health, which has its main office in Trumbull.
The deal vaults UnitedHealth from the second smallest of the six health maintenance organizations operating in the state to the second largest behind Anthem Blue Cross & Blue Shield of Connecticut.
“The geographic and product fit are excellent, the terms are fair, and we expect our resources and cost structure to drive meaningful value for customers in this business,” said Stephen Hemsley, CEO of UnitedHealth, in a July conference call with investors.
The merger also combines the two insurance companies that had the highest percentage of denials in the utilization review process in the state at between 28 percent and 30 percent, according to an annual survey published by the Connecticut Insurance Department.
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However, whereas Health Net members registered the most satisfaction in their ability to schedule appointments with physicians ”“ a possible signal of the degree to which Health Net reimburses doctors at attractive rates ”“ Oxford Health has been rated in the low-to-middle range of a series of insurance department questions on that front, also trailing in customer service.
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That could rankle Health Net customers, whose continued patronage to UnitedHealth is critical to both companies.
The transaction was valued at $450 million, including an upfront $290 million payment by the UnitedHealthcare subsidiary of Minneapolis-based UnitedHealth Group and the rest paid out over two years. Health Net could receive additional bounties for commercial customers that remain with UnitedHealthcare after the deal closes, which is expected within a year”™s time.
“With smaller employers ”¦ what we”™re seeing is a bit of a later cycle in decision-making ”“ going past what would be the normal timeframe, which would be about around now where the employers are making decisions,” said Gail Boudreaux, executive vice president of UnitedHealth.
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Woodland Hills, Calif.-based Health Net had been shopping its Northeast and Arizona operations for almost a year, and had reportedly neared a deal with Emblem Health, which owns Farmington-based ConnectiCare, only to have the deal collapse over transaction terms. Health Net indicated it now plans to retain its Arizona operations, saying opportunities existed to exploit synergies with other health plans it offers in the West.
Health Net plans to take a charge in the third quarter to account for severance costs, but the companies did not immediately state the deal”™s impact on their respective work forces in Shelton and Trumbull, where both companies had more than 500 employees at last report.
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“We will continue to focus on serving our customers in Connecticut, New York and New Jersey during the transition period,” said Paul Lambdin, president of Health Net of the Northeast, in a written statement. “We are committed to ensuring that our members experience a smooth transition to UnitedHealthcare”™s products and services.”
The deal comes even as health insurers come under increased pressure due to declines in their investment portfolios and higher unemployment, forcing states to cover more residents on Medicaid even as Connecticut and other states struggle to balance their budgets.
“Obviously, we”™re watching the state budgets closely to make sure that the revenues are matching our medical expenses; in those instances where that”™s not the case, we”™re going to work with the state on their ability to modify the makeup of the (Medicaid) service structure or the program or administrative requirements that we might have in place in order to save the state money,” said Rick Jelinek, another executive vice president of UnitedHealth. “As the last resort, we can reduce our counties that we operate in and I guess as a very last resort, a form of underwriting for us is to exit the market altogether, but where we sit right now, we”™re not contemplating that in any of our markets.”
