Puerto Rico Deals Offer Diversification to GuideWell, Anthem

by Leslie Small

 

Puerto Rico recently has become a hotbed of merger and acquisition activity, with two of the territory's largest health insurers agreeing to be sold to mainland-based companies.

A pair of deals:

• GuideWell Mutual Holding Corp., the parent company of Blue Cross Blue Shield of Florida, Inc., said on Aug. 24 that it reached an agreement to purchase Triple-S Management Corp. in a deal worth $900 million. Triple-S is Puerto Rico's largest health insurer, with more than 980,000 members across multiple business lines, according to AIS's Directory of Health Plans.
• The news of that tie-up comes not long after Anthem, Inc. on June 30 completed its acquisition of Puerto Rico's largest Medicare Advantage plan, MMM Holdings, LLC, from parent company InnovaCare Health, L.P. The deal boosted Anthem's MA enrollment by 15%, delivering more than 270,000 Medicare-eligible and dual-eligible members to the publicly traded, Indianapolis-based Blue Cross Blue Shield company.

What credit rating firms say:

• "With these two acquisitions, both companies previously represented over 50% of premiums in Puerto Rico, so it is a large proportion of the overall Puerto Rican market," S&P Global Ratings analyst Christopher Flynn says. "I think in both cases, it was kind of a diversification play."
• A large portion of Puerto Rico's population is covered by government-funded health insurance, so buying up insurers that serve the territory can help boost the Medicare and Medicaid portfolio of more traditionally commercial-focused companies like Anthem and Florida Blue, Flynn says.
• "AM Best believes Triple-S Management and its subsidiaries should benefit from a financially stronger parent in GuideWell, as well as increased scale as part of a larger organization," that credit-rating company wrote on Aug. 31.

Potential challenges:

• The S&P analysts noted that GuideWell's adjusted return on revenue, which has historically been above 5%, "will be modestly dampened" by Triple-S's lower run-rate ROR of about 2%.
• "[Puerto Rico] is definitely a much different market in terms of regulation, and that's something that these companies are going to have to monitor," S&P's Flynn says.
• For example, temporarily heightened federal funding for Medicaid on the island is set to expire soon, threatening a "major Medicaid funding cliff," according to the Kaiser Family Foundation.

From Health Plan Weekly