Coventry Health Care Inc. (CVH) has secured a rate increase for
its money-losing Medicaid program in Kentucky in a move that bodes
well for planned acquirer Aetna Inc. (AET), and potentially other
health plans in the state.
Coventry was one of three insurers--along with WellCare Health
Plans Inc. (WCG) and Centene Corp. (CNC)--that began covering
Kentucky Medicaid patients in late 2011. The state has proven
troublesome, with costs in the government health program for the
poor running higher than expected.
In a regulatory filing late Monday, Coventry said it has agreed
with the state to boost rates by 7% for each year remaining on the
contract, which runs through late 2014. The increase is effective
Jan. 1 this year.
The state also agreed to speed up a planned rate increase for
the last year of the contract's initial term by three months,
Coventry said in the Securities and Exchange Commission filing.
The rate increases build upon Coventry's recent improvements in
Kentucky and could make the company's Medicaid plan there
profitable by the end of this year, analysts said. This is good
news for Aetna, which aims to wrap up its Coventry acquisition by
mid year. The cash-and-stock deal was valued at $5.7 billion when
it was announced in August.
Aetna shares rose almost 1.2% to $51.00 in early trading
Tuesday. The rate increase should increase the amount the Coventry
deal adds to future Aetna earnings, analysts said.
The news could also be positive for WellCare, "as it is likely
that the company is also in conversations with state regulators
regarding contract changes to make the program sustainable over the
long term," Goldman Sachs analyst Matthew Borsch said.
WellCare declined comment ahead of its earnings report due
Wednesday. Shares of WellCare--which reports fourth--quarter
results on Wednesday--rose 3.2% to $54.57 in early trading.
It is less clear what Coventry's rate success means for Centene,
however, because that company aims to exit Kentucky in July 2014.
Just last week, Centene Chief Executive Michael Neidorff said on an
earnings call that the Kentucky Medicaid program was "not
sustainable in its current form."
Mr. Neidorff also reiterated Centene's belief it can terminate
its contract early. The company is seeking damages from the
state.
Write to Jon Kamp at jon.kamp@dowjones.com
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