Medicaid insurers surge on Amerigroup deal
LOS ANGELES (MarketWatch) -- Medicaid insurers surged in early trading Monday, anticipating a reshuffling among health carriers after
Shares of Amerigroup (AGP) , a player in Medicaid coverage, were catapulted by 38% after WellPoint (WLP) , one of the nation's biggest insurers, agreed to pay $92 a share for the company, or $4.9 billion. Amerigroup shares were up $24.45 to $88.79 while WellPoint shares were up more than 3% to $61.95.
The news sent shares of other Medicaid insurers soaring, as the market apparently now expects more mergers in the wake of the Supreme Court's ruling on President Barack Obama's health-care overhaul bill. The ruling preserved the federal expansion of the Medicaid program for indigent patients, though the court ruled that it's not mandatory for states to participate. Read full story on the ruling.
Fellow Medicaid insurer
Analysts said, however, that WellPoint wasn't reacting to the Supreme Court ruling by making the deal for Amerigroup. The move allows WellPoint to have substantial lines of business in both Medicare and Medicaid.
But the deal will also allow Indianapolis-based WellPoint to benefit from the Medicaid expansion, analyst Chris Rigg of Susquehanna Financial Group said in a morning note to clients.
"There is uncertainty around states' willingness to participate in the expansion program but if all states opt in, approximately 17 million uninsured lives are expected to be covered through Medicaid expansion," Rigg wrote. He added that the new company would have a presence in the four largest dual-eligible states, with potential revenue of $100 million.
Deutsche Bank's Scott Fidel concurred, adding that Amerigroup, headquartered in Virginia Beach, Va., was probably the best-positioned Medicaid player.
"This acquisition significantly enhances WellPoint's Medicaid franchise providing the company with the best pure-play asset and management team in Medicaid managed care, in our view," Fidel said in a note to clients.