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Health acquisition opens door for Humana

Thanks to UnitedHealth Group’s buyout of Sierra Health Services, an insurer with a small local presence is positioned to expand its business by nearly 25 times its current level.

The Department of Justice and Nevada Attorney General Catherine Cortez Masto required UnitedHealth to spin off its 25,000-member SecureHorizons, a Medicare Advantage plan that gives seniors a private-insurance supplement to Medicare coverage. UnitedHealth’s purchase of Sierra Health, with its Senior Dimensions Medicare Advantage plan, would have given the merged company nearly 100 percent of the Medicare Advantage market.

Enter Humana, a Kentucky-based managed-care insurer formed nearly half a century ago over a round of golf. Humana, which opened its first local sales office in 2006 in the hunt for Medicare clients, will take over SecureHorizons in a deal scheduled to close within two to three months.

Humana agreed to buy SecureHorizons for $185 million in cash and debt. The purchase will push Humana’s local Medicare Advantage enrollment from its current 1,750 members to almost 27,000 enrollees.

Executives at Humana, which also provides a separate prescription-drug benefit to 13,750 area seniors, say they’re ready for the big gain in business.

"We are in many markets, and we service a significant number of seniors in many communities similar to Las Vegas," said Debra Smith, president of senior products for Humana’s Western region. "The strategy we have in the Medicare business segment over the last couple of years really speaks to our commitment to offering seniors products and options in markets across the United States. This opportunity for us to acquire a Medicare plan with a significant amount of membership in Las Vegas is additive to our corporate strategy, and we are glad to be able to step in and enter this market in a bigger way."

Humana started in 1961 with a $2,000 investment from founders David Jones and Wendell Cherry, who conceived of the business while golfing together. The company today is smaller than some of its national counterparts: It has a market capitalization based on its share price of $11.7 billion and annual sales of $24.6 billion, compared with a market capitalization of $60 billion and annual sales of $75.4 billion at UnitedHealth. It has more than 11 million members, compared with UnitedHealth’s 25 million insureds.

But Humana has focused in recent years on expanding its insurance coverage for seniors, and in that niche, it’s grown into a top player. Humana is the nation’s second-biggest provider of Medicare benefits, with 1 million enrollees in its Medicare Advantage plan and 3.5 million patients in its Part D prescription-drug program.

And with its pending purchase of SecureHorizons, Humana becomes the second-largest Medicare Advantage provider in Clark and Nye counties, claiming about 30 percent of the two counties’ 82,000 Medicare Advantage members. UnitedHealth will keep its No. 1 position, because it will retain Sierra Health’s Senior Dimensions plan, with its 57,000 enrollees between Clark and Nye counties.

The Department of Justice’s approval of Humana’s purchase requires the company to keep SecureHorizons’ plan design and benefit structure through 2008, so there’ll be no changes in doctor networks or service coverage.

Insurers must get new plans approved by the Centers for Medicare & Medicaid Services annually. Smith said Humana will present an updated plan in 2009, but little about SecureHorizons’ offering should change.

"We intend to continue to provide this membership and seniors in the Las Vegas market with a value proposition that is robust," she said. "They will continue to have a product similar to what they enjoy now, as well as additional product offerings to choose from."

Financial analysts contacted Tuesday declined to discuss Humana because of federal regulations related to informational disclosures to media and the public.

Humana has garnered its fair share of admiration among business watchers, though.

The company is No. 110 on Fortune’s list of largest U.S. businesses. Administrative-consulting group Athena Health surveyed doctors nationwide in 2006 and anointed Humana "easiest to do business with." And Forbes magazine ranked Humana Chief Executive Officer Mike McAllister No. 3 on its scorecard of performance versus pay among Standard & Poor’s 500 CEOs.

Humana has also taken its public lumps. More than 700,000 doctors nationwide sued 11 insurers, including Humana, UnitedHealth and Wellpoint, alleging the companies delayed or denied reimbursements and rejected claims for necessary services in a racketeering effort. Humana settled its share of the lawsuit in 2005 for $40 million, plus $18 million in legal fees.

Humana executives are plotting a local marketing campaign that will raise awareness of the company’s brand in coming months. They’re also planning to add to the company’s 15-employee local office, though Smith said it’s too early to determine how many hires they’ll make.

Contact reporter Jennifer Robison at jrobison@reviewjournal.com or (702) 380-4512.

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