Aetna Inc. said Monday it will buy the Medicare supplement business of Genworth Financial Inc. for about $290 million, as it becomes the latest health insurer to announce a plan that capitalizes on the aging baby boomer population.
Aetna has about 10,000 Medicare supplement customers and will add roughly 145,000 members with its acquisition of Continental Life Insurance Co. of Brentwood, Tenn. Medicare supplement insurance covers deductibles, co-payments and other expenses not covered by Medicare, the federal health insurance program for the elderly and disabled.
Aetna CEO Mark Bertolini said in a statement from the insurer Medicare supplement coverage is expected to grow fast in the coming years as baby boomers — the generation of Americans born in the years after World War II ended — reach age 65 and become eligible for Medicare.
Aetna is the third-largest health insurer based on enrollment, trailing WellPoint Inc. and UnitedHealth Group Inc.
Last week, Indianapolis-based WellPoint said it will buy California Medicare Advantage plan provider CareMore in a deal reportedly valued at around $800 million. CareMore also runs 26 clinics staffed with doctors, physical therapists and case managers, among other health care professionals.
Medicare Advantage plans are privately run versions of Medicare, and WellPoint also cited baby boomers as a factor behind the deal. It said more than 1 million baby boomers will become eligible for Medicare every year until 2030 across the 14 states in which WellPoint operates Blue Cross Blue Shield plans.
Baby boomers are seen as a ripe business opportunity for insurers, according to Wedbush analyst Sarah James. She said the Medicare growth rate is expected to double through 2025. Insurer-offered products like Medicare Advantage or supplemental coverage can be popular because they give retirees benefits that can be similar to what they had through their working career.
"The market itself is growing, but I think also it's important to note the slice of the pie held by insurance companies also is growing," she said.
Health insurers have said they are considering acquisitions, as recent strong performances and lower-than-expected care use increases have helped them pile up cash.
James said companies held on to their cash while they waited to see how the health care overhaul affected insurers, and they are now more comfortable spending money. The overhaul, passed last year by Congress, aims to provide coverage for millions of uninsured millions, but it imposes several new restrictions on insurers.
Analysts have said the law's impact has been manageable for insurers so far.
Aetna said the Continental Life deal includes some accident and health insurance business like cancer coverage. It also includes coverage for funeral services and other final expenses. Aetna and Genworth, a financial services company headquartered in Richmond, Va., expect the deal to close in the fourth quarter. Genworth said it will record a gain of about $35 million tied to the sale.
Aetna shares climbed 4 cents to $42.90 in Monday midday trading, while Genworth stock rose 19 cents to $10.29.
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