AARP TO REPLACE PRUDENTIAL : SENIORS GROUP HOLDING TALKS WITH 3 INSURERS.

Byline: Daily News Wire Services

The American Association of Retired Persons is replacing Prudential Insurance Co. as the provider of its health-care insurance contract, valued at $4.5 billion annually.

AARP said Wednesday that it is in discussions with three other companies to provide health insurance to the organization. About 5.7 million of its more than 30 million members are enrolled in AARP's group health insurance program.

The AARP's contract with Prudential will expire at the end of 1997. Under the proposed contract:

United HealthCare Corp. would provide Medicare supplement and hospital indemnity insurance.

Metropolitan Life Insurance Co. would provide long-term care insurance.

ITT Hartford Group would provide administrative services.

Prudential said it will lose about 3,500 employees who were directly responsible for the AARP work. But AARP said it has won commitments from United HealthCare and ITT Hartford to employ those people.

Wayne Haefer, director of AARP's Membership Group, said AARP wanted to offer its members a menu of health care plans from different providers, and specifically more options for members seeking home care instead of hospitals or nursing homes.

Under the proposed contract, for example, United HealthCare and MetLife will teach members how to better manage chronic illnesses on their own.

Negotiations with the three companies will continue over the next several months and will be considered for approval by AARP's Insurance Trust and Board in November.

But, for now, United Healthcare stands to add more than $4 billion a year in premiums when the deal takes effect. That would make it the country's biggest health insurer by some measures - ahead of Aetna, which recently merged with U.S. Healthcare.

Meantime, the announcement was a blow to Newark, N.J.-based Prudential, which has provided AARP with health insurance since 1981 but lost the new contract in a bidding contest.

Since late 1994, Prudential has been cutting a bloated bureaucracy and defending lawsuits alleging the company engaged in deceptive insurance sales practices.

The health insurance operation has been particularly disappointing, said Prudential spokesman Richard Riley. Two weeks ago, Prudential lost its top two health insurance executives, Bill Link and Sam Havens. Riley said that while Prudential was disappointed at losing the AARP contract, it was not surprised.

In 1995, the AARP contract represented $3.5 billion of revenues for Prudential, out of $11 billion in health care revenues and $43 billion for the entire company.

Prudential's after-tax profit from the AARP contract was only $20 million, Riley said. ``This is a big piece of revenue for us, but it is actually a fairly modest profit number.''

Shares of publicly traded United HealthCare, based in Minneapolis, rose 1-1/2 to 40-1/8 on the New York Stock Exchange. ITT Hartford closed up 1-1/8 at 54-1/8.

Prudential and MetLife, which is based in New York City, are mutual insurers, which means they are owned by policyholders rather than shareholders.

About 20,000 of Prudential's 90,000 employees work in its health care unit, which Prudential said would have been profitable last year even without the AARP contract. Prudential, however, wouldn't release the unit's total profit.

In July, Prudential agreed to pay a record $35 million fine and set up a restitution program estimated to cost at least $100 million as part of a settlement admitting it misled U.S. customers in sales of life insurance.

Prudential also was rocked by a widespread sales scandal in its brokerage unit involving the sales of limited partnerships in the 1980s.