ObamaCare Premium? Shares of Three Medicaid Insurers’ Jump After WellPoint-Amerigroup Deal
WellPoint (WLP) agreed to buy Amerigroup (AGP) for $4.9 billion cash. The Wall Street Journal reports this will make the combined company the country’s biggest private Medicaid company, by membership.
Medicaid used to be considered a ho-hum business. States hire private contractors to run their publicly-funded healthcare programs like Medicaid, and profits are typically thin. But Medicaid spending, $457 billion this year, is expected to double by 2020, according to Amerigroup's latest 10-k. Medicaid spending, currently 23.6% of a state's budget, is growing 7% a year. According to Barron’s, the $80 billion states spend to outsource Medicaid could grow to $300 billion in five years.
That makes big insurers hungry, so who’s next? One possibility is WellCare Health Plans (WCG). Steven Cohen at SAC Capital recently doubled his stake to 5%.
But it may be too late to buy into Medicaid-focused at a decent price. WellCare, Centene Corp. (CNC) and Molina Healthcare (MOH) all jumped on the merger news. Now they’re all trading above their historical multiples and are rated Neutral by YCharts Pro service.