Giant U.S. health writers expand with push into individual market.

Several of the largest U.S. publicly traded health insurance companies are delving aggressively into the individual health marketplace, some through strategic acquisitions, as small employers take less of a role in providing health insurance for their employees--a trend that offers these companies a potentially profitable piece of the overall health insurance pie.

Major health insurers are getting into the individual, or nongroup, market because it seems to be the fastest-growing sector of the insurance population, said William Gedwed, president and chief executive officer of UICI. Based in North Richland, Texas, UICI provides health, life and related products.

Like its peers, UICI now is competing with giants such as UnitedHealth Group Inc. and PacifiCare Health Systems Inc. "They are saying, 'we see that the customers in the individual market are expanding, and the best way is to acquire somebody that is already there,'" Gedwed said.

In December, PacifiCare completed its acquisition of Green Bay, Wis.-based American Medical Security Group at a total equity purchase price of about $505 million. American Medical provides several individual and small-group insurance products to members in 33 states and the District of Columbia.

Before that, in November 2003, UnitedHealth acquired for $500 million Golden Rule Financial Corp. of Indianapolis. At the time, A.M. Best Co. said Golden Rule was a leader in the individual and group association major-medical market.

Brad Bowlus, president and chief executive officer of PacifiCare's health plan division, said individual health is a rapidly expanding market. "We've noticed in group insurance that there has been a decline in the number of small-group employers, and some employers are now opting to cover their employees more on an individual basis," he said.

Gedwed noted his bigger rivals' strategies. "Companies are making an aggressive effort to say, instead of robbing Aetna's customers, if I am United, I am going to get into the individual marketplace and acquire companies where I can start to expand nay market presence," he said.

American Medical is about 75% individual and 25% small group, Bowlus said. "Their real prowess was in the individual space, no different than Golden Rule that United acquired.

"We saw that as acquiring not just the membership but a lot of the infrastructure, know-how and product that goes along with serving that customer segment," he said.

American Medical's broker distribution channel, numbering about 30,000, complements PacifiCare's. "We are able to take the best of both product portfolios and then push those out within each of the broker populations," Bowlus said, noting PacifiCare has access to a captive agency force.

Another driver of the interest in the individual market is that "there's still a significant portion of the uninsured market that is relatively affluent, and with the products ... we believe that's a very viable market," said Bowlus.

Michael Taylor, a principal and senior health-care consultant with Towers Perrin, noted that for several years, many of the large carriers had individual and small-group businesses. But "through a series of bad things, mostly benign neglect, poor pricing, bad risk ... that business became very unprofitable for them," he said.

The big health insurers have returned to profitability, Taylor said. "They've learned the lessons about underwriting, pricing and the characteristics of the individual market," he said.

Aetna Inc. is looking at the "stratas" of the uninsured U.S. population--estimated at 45 million--and trying to find products to address the problem, said company spokesman David Carter. Aetna completed its roughly $250 million acquisition last year of Strategic Resource Co., a privately held administrator of group benefit products for part-time and hourly workers. That move was similar to one in December 2003, when Aetna acquired Chickering Group, which serves the student health market, where there is a high percentage of uninsured.

Research indicates the uninsured market includes nearly 4 million college and university students and 24 million part-time and hourly workers, the majority of whom don't have employer-sponsored health insurance, Aetna said.

Health-Care Trends,
Nonelderly, 2002-2003

The percentage of the nonelderly
(under age 65) population without
insurance rose from 17.3% in 2002
to 17.7% in 2003 (or 44.7 million
uninsured), an increase of 1.4
million over 2002.

                             2002            2003
                          250 Million     25.7 Million
                            People          People

Private Non-Group             5.3%            5/3%
Employment-Based             63.3%           61.9%
Medicaid/Other Public*       14.1%           15.1%
Uninsured                    17.3%           17.7%

*Includes the State Children's Health Insurance
Program, other state programs, Medicare and
military-related coverage