KHI News Service

Aetna acquisition of Coventry unopposed in Kansas

By Jim McLean | November 05, 2012

Kansas Insurance Commissioner Sandy Praeger speaks Monday at a public hearing on Aetna’s planned acquisition of Coventry Health Care while lawyers and executives for the companies, including Gregory Martino, Aetna’s assistant vice president for governmental affairs (center, yellow tie) listen.

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A top Aetna executive said Monday the health insurance company’s planned acquisition of Coventry Health Care would benefit Kansas consumers by giving them more choices in the marketplace.

Gregory Martino, an assistant vice president for governmental relations, made the comments in sworn testimony at a public hearing called by Kansas Insurance Commissioner Sandy Praeger.

Martino said Coventry, which increased its Kansas footprint in 2010 when it acquired Wichita-based Preferred Health Systems, has “good market share” in the individual and small-group markets. He said if the pending $7.3 billion deal were approved by Praeger and insurance regulators in more than 20 other states, “it will bring forth a much greater level of competition in the state (Kansas).”

Aetna is the nation’s fourth largest health insurer. It covers more than 18 million Americans and generates annual revenues of more than $33 billion. In its third quarter earnings report, Aetna said the acquisition of Coventry, the nation’s seventh largest health insurer, would increase the number of people it insures by 4 million and boost its Medicare prescription drug plan members by 1.5 million.

While Aetna is the much larger company nationally, Coventry is bigger in Kansas. In 2011, Aetna collected just under $58 million in Kansas premiums while Coventry took in $187 million.

Praeger has authority to reject the deal but only if her staff uncovers evidence that it would harm policyholders or that Aetna’s stability is threatened by financial or management problems. Ken Abitz, director of the financial surveillance unit at the insurance department, testified that his review of the transaction and the company’s records turned up no concerns. He recommended that Praeger approve the acquisition.

Only 12 people attended the hearing and many of them were insurance department employees or representatives of the companies. Two members of the public commented on the acquisition, neither opposed it.

In an interview after the hearing, Praeger declined to say whether she intended to approve the transaction but said neither the hearing nor the review by her regulatory staff had turned up any issues that would give her grounds for rejecting it under state law.

“We’ll look at it closely to make sure we’re comfortable with all of the details and probably have a decision fairly soon,” she said.

Praeger said the acquisition of Coventry would give Aetna a significant share of the individual insurance market in Kansas. Few health insurers have concentrated on the individual market in the past, but Praeger said she expected that to change if the Affordable Care Act remains in place and is implemented on schedule. That’s because thousands of Kansas who today can’t purchase individual policies because of pre-existing conditions or cost will be guaranteed access to more affordable policies under the reform law starting in 2014.

“If the Affordable Care Act remains the law of the land, the individual market then becomes a much more viable market,” she said. “I think we’re going to see going forward more small companies decide to do defined contribution and letting their folks buy in the individual market. So, I think there is real growth potential in the individual market, which may have governed some of their (Aetna’s) thoughts.”

Medicare, particularly Medicare Advantage and prescription drug plans, are a major focus of both Aetna and Coventry. Both also are major players in the growing Medicaid managed care market. Coventry bid on the Medicaid managed care contract let as part of Gov. Sam Brownback’s KanCare plan, but was not one of the three companies selected. Aetna did not bid on KanCare.

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