WellCare's Unit To Divest Medicaid Health Plans To Anthem

WellCare Health Plans, Inc. (NYSE:WCG) has announced that it will be selling its Missouri and Nebraska Medicaid plans to Anthem, Inc. (NYSE:ANTM) . This move is related to the $17-billion pending merger of Centene Corporation (NYSE:CNC) and WellCare, which is expected to close in the first half of 2020. However, this sale is subject to certain closing conditions.

Notably, Anthem, which is at the helm of implementing Blue Cross and Blue Shield plans across 14 states, will win around 300000 Medicaid members through this deal. The company has been actively collaborating and acquiring units for enhancing its expansion process. With this buyout, it is looking to serve the Medicaid members in Missouri and Nebraska and help them achieve improved health outcomes.

As previously declared, Centene has agreed to purchase WellCare, which will leverage its position as the largest Medicaid managed care organization in the country. The merged entity, post closure, will have a wider scale and diversification with more than 12 million Medicaid and around 5 million Medicare members. In total, it will have almost 22 million members across 50 US states, making it one of the biggest providers of government insurance.

The deal has got regulatory nod in 19 states.

The transaction is expected to generate adjusted earnings per share accretion of approximately mid-single digits in the year two following its completion with long-term growth opportunities and cost-reduction efforts across markets and products.

This government business line remains attractive for Centene because of the growth opportunity it holds for the players. The rise in the number of baby boomers makes the business lucrative for the companies as more people would opt for the plans that provide an enriched value-based care. Per CMS, Medicare spending is expected to grow on average of 7.6% per year from 2020 to 2027. Whereas Medicaid spending is projected to increase 6% every year over the same time frame. This is the reason why market leaders like UnitedHealth Group Inc. (NYSE:UNH) and Humana Inc (NYSE:HUM). are making concerted efforts to make the most of this business.

The deal will push the merged entity into the fastest-growing segment of the industry.

Shares of WellCare, a Zacks Rank #2 (Buy) player, have lost 19.5% in a year's time, narrower than its industry's decline of 21.2%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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