Insurer Paying $8 Billion for Slice of Senior Market

UnitedHealth Group, the big U.S. health insurer, has made a push into the rapidly growing market for elderly patients by agreeing to buy PacifiCare Health Systems for $8.14 billion in cash and stock.

UnitedHealth’s chief executive, William McGuire, said the goal of the deal, announced Wednesday, was expanding its presence in Western states, where PacifiCare is strong, and gaining more clients who use Medicare, the federal government’s minimal health plan for people 65 or older.

In the next decade, an additional 10 million people will join the 36.7 million now in the ranks of Americans 65 and older, McGuire said in a telephone interview. Under the deal, UnitedHealth would gain an array of services for the rapidly growing Medicare population, including private Medicare-subsidized insurance plans, Medigap supplemental coverage for people who subscribe to conventional fee-for-service Medicare, and a Medicare drug coverage benefit that is to begin in January.

UnitedHealth Group and PacifiCare have filed an array of Medicare drug plans with the government under that program, under which United already planned to offer Medicare drugs in partnership with the Walgreens drug store chain, both in stores and by mail.

Wall Street analysts noted that UnitedHealth was acquiring a widely known brand in PacifiCare’s Secure Horizons unit while also obtaining PacifiCare’s small managed-care drug unit, with 5.6 million members. “They have a brand portfolio that would probably make Proctor & Gamble weak in the knees if it was in that business,” said Sheryl Skolnick, a health care analyst at Fulrum Global Partners.

UnitedHealth has been providing drug benefits through Medco Health Solutions, a pharmacy benefits giant with 60 million people covered. McGuire said Medco would remain UnitedHealth’s primary drug manager for commercial customers. But the prospect of the PacifiCare deal’s eventually altering that arrangement helped send Medco’s stock tumbling, closing Wednesday at $50.75, down 4 percent

PacifiCare closed up 6 percent at $77.09, while UnitedHealth was up 0.5 percent at $53.50

By adding PacifiCare’s 3.3 million enrollees, UnitedHealth would have 25.7 million members. That would still leave it second in the United States to WellPoint, which has 27.7 million members.