Now that the healthcare constitutionality argument has passed, healthcare and insurance providers are consolidating.  WellPoint Inc. (NYSE: WLP) just announced that it was acquiring AMERIGROUP Corporation (NYSE: AGP) in a $4.9 billion transaction in cash against its own market cap of $20.6 billion.  Usually acquirers see their share price drop in reaction to an acquisition, but WellPoint Inc. (NYSE: WLP) is up over 3% at $61.70 on the news.

Here is where the deal raises some eyebrows.  AMERIGROUP Corporation (NYSE: AGP) is up a whopping 37.9% at $88.74 with a $4.3 billion market cap and prior 52-week range of $37.57 to $75.18.  The market is expecting more mergers to come in the healthcare and insurance field, and frankly it should only expect more consolidation in the sector.  For an insurance to mitigate risk of individuals adding coverage only when they are sick or in need of healthcare, the insurance companies can only mitigate that risk by adding a larger customer base.

There is one other thing to consider here in this analysis.  Healthcare insurance companies are not really healthcare companies.  They are financial service companies that have to navigate premiums and risk around the healthcare sector.

Here are the reactions we are seeing elsewhere in the sector among the mid-cap and small-cap players in the field:

Centene Corp. (NYSE: CNC) is up 17% at $34.00 with a $1.5 billion market cap and 52-week range of $24.26 to $50.98.

Coventry Health Care Inc. (NYSE: CVH) is up 2% at $31.14 with a $4.3 billion market cap and a 52-week range of $25.78 to $37.49.

Health Net, Inc. (NYSE: HNT) is up almost 5% at $26.23 with a market cap of $2.1 billion and 52-week range of $20.51 to $41.22.

Molina Healthcare Inc. (NYSE: MOH) is up 12.5% at $25.85 with a $1.07 billion market cap and 52-week range of $13.93 to $36.83.

Universal American Corp (NYSE: UAM) is up 2.5% at $10.66 with a $890 million market cap and a 52-week range of $8.79 to $13.62.

WellCare Health Plans, Inc. (NYSE: WCG) is up over 13% at $60.10 with a market cap of $2.3 billion and a 52-week range of $33.29 to $74.41.

Then there is the reaction in the larger players:

Aetna Inc. (NYSE: AET) is up 2% at $38.38 with a $13 billion market value and a 52-week range of $33.43 to $51.14.

Cigna Corp. (NYSE: CI) is up 2% at $43.45 with a $12.3 billion market cap and 52-week range of $38.79 to $52.95.

Humana Inc. (NYSE: HUM) is up 1% at $77.22 with a $12.5 billion market cap and 52-week range of $65.20 to $96.46.

Again, all you have to do is go talk to anyone in the insurance sector.  More healthcare insurance mergers are coming down the pipe.  Insurance is no longer a growth opportunity and the companies in this field can only grow by one of two methods.  They can take business away from each other with lower and lower quotes or they can merge to grow their book of business to become that much more defensive.

Unitedhealth Group, Inc. (NYSE: UNH) is even up 0.4% at $56.05 and it has a $58.5 billion market cap and a 52-week range of $41.27 to $60.75.  It has made acquisition after acquisition and now you have to assume that other insurers are going to try to catch up to the company’s massive market value.

After the merger wave is done, there may very well only be a small number of large companies competing for healthcare insurance on a national scale.  Imagine the day that “too big to fail” pertains to your healthcare insurance provider rather than just your big bank.  If you haven’t been told about the coming wave of insurance mergers yet then consider this your notice.  There is simply no other likely outcome unless the new healthcare laws are thrown out in 2013.

JON C. OGG

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