Aetna's $1.05 Billion Deal to Buy NYLCare's Health-Plan Business: Risks and Opportunities

Strategic Insights -

Aetna Inc.'s acquisition of New York Life Insurance Co.'s health-plan business, NYLCare, for $1.05 billion marks a major move in the managed care industry, despite concerns from analysts that it may be a risky investment. The deal, expected to complete by 2000, will add 2.2 million NYLCare members to Aetna's existing 13.7 million, making it one of the largest health insurance companies in the region. NYLCare's good record in allowing doctors to decide what is best for patients has also been cited as a positive aspect of the acquisition.

Key Takeaways:

  • The deal will add 2.2 million NYLCare members to Aetna's existing 13.7 million, making it one of the largest health insurance companies in the region.
  • Aetna will pay cash for the acquisition, with the potential for an additional $300 million if NYLCare meets certain goals.
  • The deal is expected to produce after-tax savings of $45 million to $55 million for Aetna next year.
  • NYLCare has a good reputation in allowing doctors to decide what is best for patients, with the Doctors Health System citing a positive relationship with NYLCare.
  • The acquisition boosts Aetna's effort to expand into the managed care sector, where NYLCare has been more successful.
  • The deal reflects conflicting reactions to recent upheavals in the health insurance business, where profit growth slowed dramatically for many of the largest companies last year.
  • Duff & Phelps Rating Co. called NYLCare an under-performing business for New York Life, and said its sale would improve the parent company's financial outlook.

Statistics:

  • Aetna's current membership: 13,700,000
  • NYLCare's total premium revenues: $3.1 billion (1998)
  • Aetna's after-tax savings from the deal: $45 million to $55 million
  • NYLCare's enrollees in the Mid-Atlantic region: 489,000
  • Number of NYLCare members Aetna will add: 2,200,000

Sources:

  • Aetna Inc. (PR Newswire)
  • Merrill Lynch (healthcare research group)
  • New York Life Insurance Co. (Sy Sternberg, Chairman and CEO)
  • Duff & Phelps Rating Co.
  • Bloomberg News Service
  • Moody's Investor Service