Aetna to Acquire New York Life's Health Care Business for $1.05 Billion

Aetna Inc., the nation's second-largest health insurer, is set to announce a significant expansion of its presence in the health care market with the acquisition of New York Life's health insurance business, NYLCare Health Plans, for $1.05 billion in cash. The deal, which is expected to close today, would give Aetna a major boost in its market share in metropolitan New York, the Washington-Baltimore area, and Texas, and enable New York Life to focus on its core life insurance and annuity businesses.

Key Takeaways:

• The acquisition of NYLCare Health Plans, which has 2.2 million health insurance customers, including 1.5 million under managed care, would significantly increase Aetna's market share in metropolitan New York, the Washington-Baltimore area, and Texas.
• The deal would also enable Aetna to gain leverage in negotiating better prices with doctors and hospitals, which are key to its strategy of offering a wider choice of physicians to its customers.
• Aetna's chief executive, Richard Huber, has indicated that the company is looking for further acquisitions, particularly of companies like NYLCare that can offer large concentrations of managed-care customers in fast-growing regions.
• The merger is not expected to have an immediate effect on costs, benefits, or physician relationships for customers of the two companies, but it should ultimately provide a wider choice of physicians.
• New York Life, which is formally owned by its policyholders and is not required to disclose as much financial detail as publicly traded companies, has been struggling to turn a profit in its health insurance business, with NYLCare just about breaking even in 1996 and losing about $30 million on revenue of $3 billion last year.
• Aetna's acquisition of NYLCare Health Plans comes on top of its 1996 purchase of U.S. Healthcare for $8.2 billion, which became one of the nation's biggest health insurers after the deal.
• Aetna's acquisition of NYLCare Health Plans is part of a trend of life insurers selling off their health care businesses in recent years, as these companies seek to focus on their core businesses and gain leverage in negotiating better prices with doctors and hospitals.

Statistics:

• Aetna is buying NYLCare Health Plans for $1.05 billion in cash, with the option to pay up to $300 million more over the next two years if the company meets certain growth targets.
• NYLCare Health Plans has 2.2 million health insurance customers, including 1.5 million under managed care.
• The acquisition would give Aetna a major boost in its market share in metropolitan New York, the Washington-Baltimore area, and Texas, with NYLCare Health Plans having 146,000 managed-care customers in metropolitan New York, 634,000 in Texas, and 477,000 in the Washington-Baltimore area.
• Aetna's acquisition of NYLCare Health Plans comes on top of its 1996 purchase of U.S. Healthcare for $8.2 billion, which became one of the nation's biggest health insurers after the deal.

Sources:

• Byline: Joseph B. Treaster, New York Times
• Aetna Inc.
• New York Life Insurance Co.
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