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WellCare (WCG) Buys Aetna's Medicare Assets to Fuel Growth

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WellCare Health Plans Inc. (WCG - Free Report) has completed the purchase of the entire standalone Medicare Part D business from Aetna, which was recently acquired by CVS Health.

Aetna divested this business in order to appease regulators for their nod to its pending merger with CVS Health. Since CVS Health and Aetna had Medicare as an overlapping business, it became necessary to divest this business to gain approval for the deal from the Department of Justice.

The deal will, however, be not accretive to the WellCare Health’s revenues until 2020 and Aetna will provide administrative services to, and assume the financial risk of Aetna Part D plans through the end of plan year 2019. So, WellCare Health does not expect the deal to be accretive to its revenues until 2020.

The purchase of Medicare business of Aetna bodes well for WellCare Health, which has been making concerted efforts to boost its Government business, which includes Medicare and Medicaid. In this vein, it recently acquired Meridian Health Plan for $2.5 billion, which is expected to produce 40 cents to 50 cents of accretion to WellCare's adjusted earnings per share in 2019, 70 cents to 80 cents of accretion in 2020, and more than $1.00 of accretion in 2021.

Another remarkable deal reached by WellCare Health was that of its acquisition of Universal American Corp. last year that increased Medicare Advantage membership of the former by one-third and deepened its presence in Texas and New York.

Medicare Advantage or MA, a proxy to the government’s Medicare program is a huge and growing market for the health insurers, as 10,000 baby boomers retiring each day have pushed up demand for the same.

Per L.E.K. Consulting, Medicare Advantage enrollment will rise to 38 million, or 50% market penetration by the end of 2025. Currently, just under 35% of Medicare beneficiaries, or about 20 million Americans, are enrolled in MA plans.

In order to cater to this huge wave of MA demand, most of the players in the industry such as UnitedHealth Group Inc. (UNH - Free Report) , Humana Inc. (HUM - Free Report) and Centene Corp. (CNC - Free Report) have been busy expanding their reach in this market by acquiring related companies.

Year to date, the stock has gained 25% compared with the industry’s growth of 27.7%.

WellCare Health carries a Zacks Rank #3  (Hold).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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