Humana Inc., the second-largest Medicare provider, is willing to spend $1 billion for deals that would enable the company to expand in the U.S. government program, Chief Executive Officer Michael McCallister said.
“We could do $1 billion-plus deals if we wanted to,” McCallister said in an interview at the World Economic Forum’s conference in Davos, Switzerland. “We have a lot of capacity for something of that size. We’ve acquired a number of small plans but we are open to something that expands us in Medicare.”
The U.S. health-care law puts pressure on how much insurers can be reimbursed for care and is expected to hurt profit margins, said Chris Rigg, an analyst with Susquehanna Financial Group in New York. Increasing the size of Humana’s Medicare business, which already brings in more than $20 billion each year, would help with costs, McCallister said.
Universal American Corp., Coventry Health Care Inc. and Health Net Inc. are among companies focused on Medicare, the government’s health plan for the elderly and disabled, said Michael Manns, a Bloomberg Industries analyst. The companies, with market values more than $1 billion, are the size Humana would need to make an effect on earnings, Rigg said. Humana probably will look at closely held companies, he said.
Humana fell 2.7 percent to $87.11 at the close in New York. In 2010 and 2011, Humana was the best performer of the six companies in the S&P 500 Managed Health Index.
Universal, based in Rye Brook, New York, fell 3.6 percent to $10.87. Coventry, based in Bethesda, Maryland, fell 2.7 percent to $29.54. Health Net, based in Woodland Hills, California, gained less than 1 percent to $35.81. None of the companies returned calls requesting comment.
Humana has acquired several smaller health insurers to expand in Medicare.
Aetna Inc.’s Chief Executive Officer Mark Bertolini said earlier this month that he is looking for deals in government programs. Cigna is buying HealthSpring Inc., which had more than $1.3 billion in revenue from Medicare in the third quarter. UnitedHealth Group Inc., the largest insurer and Medicare provider by revenue, will continue to get bigger, Rigg said.
“The market thinks there needs to be more consolidation in the managed-care area and it might be right,” McCallister said. “There are a lot of small players with 20,000 to 150,000 members and they will continue to be bought up.”