Although it is a Fortune 500 company with headquarters in Bethesda, Coventry Health Care doesn’t have deep roots or much of a public profile in the Washington area. It is here because of historical accident and because its top executives like living here.
It is one of the country’s 10 largest health insurance companies, but Coventry is not very active in the national conversation about health policy, nor is it known to be on the cutting edge of industry innovation. It is not particularly well-loved by its customers, who give it below-average quality ratings. Among industry insiders, its reputation is for paying its bills late, saying “no” as much as it can get away with and offering lower-price policies in less-than-competitive secondary markets.
Steven Pearlstein is a Pulitzer Prize-winning business and economics columnist at The Washington Post.
By 2080, nearly a quarter of Americans will be old enough for Medicare, the federal health insurance program for people age 65 and older. Why should you care about Obama’s plan and Romney and Ryan’s proposals?
More business news
Texas company wins research grant to test the concept — with possible uses here on Earth, too.
Apple CEO Tim Cook offered no apologies at a Senate hearing on his firm’s tactics for avoiding U.S. taxes.
What Coventry Health has been superb at is caring for Wall Street, growing steadily through acquisition, posting some of the highest margins in the industry and maintaining a single-minded focus on share price through lavish, stock-based compensation for its top executives and directors.
In early 2009, after Coventry stock had fallen nearly 75 percent and net profits fell 40 percent, Chairman Allen Wise didn’t even wait for the year-end figures to be announced before forcing out his hand-picked successor, Dale Wolf, as chief executive and taking back the reins. Wise arranged a $5.5 million signing bonus for himself, while sending Wolf away with $9 million in compensation for his career-ending performance in 2008, along with a $4 million severance payment, vesting for his unvested stock options and an early retirement with full pension.
Now, with the health insurance industry near the top of its profit cycles and Obamacare about to add tens of millions of new people to the insurance pool and another wave of consolidation hitting the industry, Wise has decided it’s time to do what he meant to do all along: sell Coventry to an industry giant for a 20 percent premium over the market price.
Besides delivering a bonanza for Wise and his tight-knit crew of directors and executives, the $7.3 billion purchase makes lots of sense for Aetna. The Hartford-based insurer is one of the four dominant players in the market for managing health plans for large and medium-size businesses, but it has had trouble breaking into the markets where Coventry does business: the individual and small group market plus managed-care plans under Medicare and Medicaid — the very markets that are expected to grow rapidly in coming years.
But a deal that is a boon to Coventry and Aetna shareholders is bad news for the rest of us, reducing the potential for greater competition in the health-care sector at the very time that the country is looking to competition to improve the quality of care and bring runaway costs under control.
Aetna isn’t the only health insurance giant that has shelled out billions of dollars to buy even more market share. Last month, its bigger rival Wellpoint moved to increase its share of the Medicare and Medicaid markets by agreeing to buy Amerigroup for about $4.9 billion. Last year, Cigna picked up Healthspring, another specialist in Medicare Advantage plans, for $3.8 billion.