As Blue Cross and Blue Shield health plans move toward consolidation, analysts say a Wisconsin Blues insurer may now be a more attractive purchase to a Chicago company and two other potential suitors than when it first came on the market a year ago.
Milwaukee-based Cobalt Corp., formed last year when Blue Cross and Blue Shield United of Wisconsin and United Wisconsin Services merged, has been seeking a buyer for several months, the insurer confirmed.
Chicago-based Blue Cross and Blue Shield of Illinois, California-based Wellpoint Health Networks Inc. and Anthem Inc. of Indianapolis have all looked at the possibility of a deal with Cobalt in the last year, Cobalt officials say.
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Cobalt wouldn’t comment about potential deals, but executives say they regularly talk with all three plans. “We continue to have business relationships with all three potential suitors,” Cobalt Chief Executive Tom Hefty said in a recent interview.
Because medical costs are rapidly rising, health plans need large numbers of enrollees. With more enrollees, insurers can better spread their costs and gain leverage and buying power.
“I think there will continue to be consolidation in order to gain access to capital,” Hefty said.
Yet analysts say the three plans have shied away from Cobalt because of weak operating results and a lack of focus on core businesses.
Now, however, Wall Street believes the plan is better positioned for future growth after Cobalt decided earlier this year to divest its majority stake in American Medical Security Group Inc., a managed-care company based in Green Bay. And on Monday, Cobalt said it would sell a behavioral health-care company based in a Milwaukee suburb for $27 million.
Cobalt’s stock price has doubled in the last six months, and the company made money last year for the first time since 1999.
“Most companies that have streamlined to their core Blue Cross and Blue Shield business roots have been able to operate better,” said James Lane of Salomon Smith Barney in New York.
“To the extent their performance improves, they become more attractive,” he said.
For now, Illinois Blues said it isn’t interested in a deal.
“We are in no discussions with them at this point, but we remain friendly,” said Robert Kieckhefer, spokesman for the Illinois Blues.
Meanwhile, Wellpoint and Anthem said they don’t comment about potential mergers or acquisitions.
Both plans are, however, looking to expand in the Midwest. Wellpoint earlier this year bought the Missouri Blues plan and two years ago bought Rush-Prudential Health Plans in Chicago, where it now operates under the Unicare brand. Anthem’s holdings include Blues plans in Indiana, Kentucky and Ohio.
Observers say there may now be more pressure on Wellpoint and Anthem to look at Cobalt because other planned acquisitions have run into snags.
Wellpoint’s effort to purchase a Blues plan in Maryland has run into opposition from state lawmakers there who oppose the local insurer’s conversion to stock ownership.
Meanwhile, Anthem’s attempt to purchase the Blues plan in Kansas was rejected in February by that state’s insurance commissioner.