U.S. HEALTHCARE PURCHASE WILL MAKE AETNA NO. 1.

Byline: Steve Sakson Associated Press

Aetna Life and Casualty Co. is buying U.S. Healthcare Inc. in an $8.9 billion deal that will create the nation's biggest provider of health benefits, reaching one in every 12 Americans.

Combined, the companies' medical plans cover 23 million people nationwide with such coverage as life, disability, mental health, prescriptions, vision and dental. Of that number, 14 million get full-scale medical coverage.

The deal announced Monday represents a clear illustration that traditional health insurance is in irreversible decline, to be replaced by HMOs and other forms of managed care, where U.S. Healthcare is a leader.

Although the combined company will retain the Aetna name, it will be managed more like U.S. Healthcare, which is far more profitable.

Hartford-based Aetna has been publicly searching for a health care merger partner for six months, planning to shed less profitable insurance lines like auto and homeowner coverage.

Within days, Aetna is expected to complete the $4 billion sale of its property-casualty insurance unit to Travelers Group.

U.S. Healthcare, based in Blue Bell, Pa., serves 13 Eastern states and Washington, D.C.

``This merger is a major step in our strategic plan to create an outstanding national health care company,'' said Aetna Chairman Ronald E. Compton, who will also be chairman of the merged company. ``It is an excellent strategic fit and establishes a strong platform for growth.''

Aetna provides full-scale medical coverage to far more people than U.S. Healthcare, 11.3 million compared with 2.8 million.

But Aetna earned only $252 million last year on $13 billion in revenues.

CAPTION(S):

Photo, Chart

Photo: (Color) COMPTON

Chart: (Color) The Merger Par tners at a Glance

Aetna Life and Casualty is buying U.S. Healthcare with money from the sale of its property and casualty business last year.

The New York Times