WellPoint Inc., the nation's largest health insurer, moved Tuesday to expand its reach by acquiring WellChoice Inc. in a move that analysts said would thwart competition and physicians said could be detrimental to health plan members.
The deal, valued at $6.5 billion in cash and stock, would give Indianapolis-based WellPoint an important inroad into the New York area with 5 million new customers and access to nationwide accounts, company executives said. WellPoint said it would pay $77.23 in cash and stock per WellChoice share, about 9.4% more than WellChoice's closing price Monday.
Shares of WellChoice rose $4.91 to $75.51, and WellPoint fell 8 cents to $75.01.
Better known as Empire Blue Cross Blue Shield, WellChoice is the largest health insurer in New York state. Previously a nonprofit, it converted to a profit-making venture in 2002 and went public. It is the last independent, publicly traded Blue Cross plan in the country.
WellPoint, which has about 28 million members, also uses the Blue Cross and Blue Shield brand names for its subsidiaries. It was formed last year when Anthem bought WellPoint Health Networks Inc. of Thousand Oaks and changed its name. Together, WellPoint and New York-based WellChoice would have more than 33 million members in 14 states.
"We believe there's much to be gained by combining strengths of each organization," WellPoint Chief Executive Larry Glasscock said. "Our combined companies are strongly positioned to compete in the marketplace."
Glasscock said some WellChoice employees would be laid off as a result of the deal, but did not specify how many jobs would be affected.
Michael Stocker, WellChoice's president and chief executive, would become CEO of WellPoint's Northeast region. He said that the merger would help WellChoice hold down the rising cost of health insurance and that members would not notice any change in their policies or provider networks.
"It will be seamless for WellChoice customers," Stocker said. "They will continue to be served by the same health company they know today."
But James Rohack, a trustee of the American Medical Assn. and a Texas cardiologist, said mega-mergers in the health insurance industry didn't lower premiums or increase the benefits offered to patients.
"We believe that these large consolidations of the insurance industry have prevented competition from occurring at the local level that could keep costs under control and reduce prices for patients," he said.
Lynda Lees Adams, a spokeswoman for the Medical Society of the State of New York, said the deal could also be bad for doctors.
"The more power an insurance company has, the more likely it is to tell a doctor what treatments he can and cannot do," she said.
The companies said they expected the transaction to close during the first quarter of 2006 pending stockholder backing and approvals by New York, New Jersey and federal regulators.