Under terms of the deal, United will pay about $510 million for Health Net's Northeastern assets, which are expected to generate $2.7 billion in revenues this year. At closing, United will pay consideration of $60 million for Health Net's Medicare and Medicaid business and renewal rights to its commercial membership in the three states. If all of the commercial plan members transfer to United plans, Health Net could receive as much as $120 million in this part of the transaction.
United will also transfer $290 million to United after closing. It will pay Health Net for the remainder of the $450 million in tangible equity in the operations "as the business transitions over the next two years." Health Net will continue serving its members in the New York area as United attempts to sign them up.
While it's difficult to determine how big United's regional business is, the giant national insurer says that it currently has a network of 79,000 healthcare professionals, 200 hospitals and 61,000 pharmacies in the three states. One indication of how local physicians regard the power of United are the suits filed against the company in New York and Connecticut a few years ago by doctors who resisted United's efforts to make them take Oxford members, or vice versa. United's acquisition of Oxford Healthcare marked its ascent to a dominant position in the region, and the Health Net purchase will make it even more difficult for any local provider to say No to United.
Meanwhile, United has released its second-quarter results, and they are pretty strong, despite continuing attrition in membership. Revenues hit $21.7 billion, a 7 percent increase from the year-earlier period. While earnings from operations dipped slightly, to $1.44 billion, and investment income dropped more, net income shot up to $859 million from $337 million for the second quarter of 2008. Net earnings for the first six months of this year were $1.84 billion, a 38 percent rise over the prior-year period. The biggest reason for that improvement is that the year-earlier results included $922 million for settlement of two class-action lawsuits and $46 million in severance pay for laid-off employees, partly offset by $185 million from the sale of some assets. If you do the math, United's bottom line looks less rosy, but earnings per share did rise 9 percent from the year-earlier period.
Contributors to the robust revenues for the 2009 second quarter include an 8 percent rise in premium revenues to $1.4 billion; volume growth at United's pharmacy benefit manager, Prescription Solutions; and "strong growth in risk-based products in the public and senior markets business," including Medicare and Medicaid. The company's "medical loss ratio"--the percentage of premium income it paid for health care--remained nearly constant at 83.6 percent.
So overall, surf's up for United. Question is, how good will the picture look a year from now if healthcare reform legislation is passed?