The nation's biggest health insurer said Monday that it would pay $300 million in cash to buy Definity Health Corp., the leading provider of consumer-driven health plans, whose base of operations is in Amherst.
The move by Minneapolis-based UnitedHealth Group is not expected to affect Definity's business in the Buffalo area, where the company currently employs 320. Hiring and expansion plans for a new facility are still in progress, and officials believe the acquisition by the deep-pocketed UnitedHealth will lead to further growth.
Definity is building a new 60,000-square-foot operations center in Tonawanda's Colvin Woods Business Park, with room for another 30,000 square feet of space. Officials still expect to move to the new facility in February.
The Definity operation in Amherst was formerly part of North American Health Plans, which Definity had hired to provide servicing for its business while it grew. Definity bought out that portion of North American, along with about 250 employees, earlier this year, and has already added almost 80 workers.
"We're committed to Buffalo and looking forward to moving into the new service center come February, as planned," said Timothy M. Godzich, a Definity co-founder, Buffalo native and head of business development. "This is an exciting opportunity for Definity Health."
UnitedHealth, which has 22 million members in employer-sponsored health plans, has been on an acquisition binge in the last year, as health insurers pressured by rising costs and slow internal growth try to expand by purchasing each other.
The company bought AmeriChoice in 2002, and then spent more than $6.6 billion this year on Mid Atlantic Medical Services, Fidelity Insurance Group and Oxford Health Plans to grow in the Mid-Atlantic and northeastern states.
It's also expanded Medicaid and Medicare products, and last year bought Golden Rule Financial Corp., which specializes in medical savings accounts.
"It's been an incredibly active year for them," said Jane DuBose, an analyst at HealthLeaders Research in Nashville, Tenn. "It illustrates how integratedUnitedHealth is becoming, that they really can offer their clients practically anything in the health care spectrum."
Definity provides health benefits through self-funded insurance programs to nearly 100 employers nationwide, including 23 of the Fortune 500 and about a dozen of the Fortune Global 500. That means Definity handles the benefits administration, but the employers pay the actual costs of insurance.
Founded in 1998, the private company currently serves about 320,000 members in all 50 states and expects to be up to nearly 500,000 by January. It projects 2005 revenues of about $100 million and is currently profitable. It is headquartered outside Minneapolis, but the largest operation is in Amherst.
The merger will give Definity customers access to UnitedHealth's network of 460,000 doctors and other care providers, along with more than 4,000 hospitals nationwide. Definity will operate as a separate subsidiary under UnitedHealth's Uniprise self-funded division, running the combined company's consumer-driven health plans under the Definity name.
"It's a sign that they were doing something in the market that had value and that this is a signal that what they were doing made sense, because the nation's largest health care benefits company is saying we like what you did," DuBose said. The deal must still be approved by the Federal Trade Commission, but is expected to be completed next month.
The decision by UnitedHealth to acquire the much smaller cross-town firm demonstrates the power and expected growth potential of consumer-driven health care. That refers to a new model of health insurance in which consumers decide for themselves how to spend their health care dollars before catastrophic coverage kicks in. The belief is that if consumers have to absorb the full cost of medical care, they'll become better shoppers.
The plans feature high-deductibles of at least $1,000 and a health savings account or other account in which consumers and employers set aside money for employees' health care expenses. The higher the deductible, the lower the premium.
Acceptance of such programs has been slow, but experts predict the pace will pick up. A study by consulting firm William M. Mercer found that 43 percent of employers are likely to offer such plans in 2005 and 73 percent by 2006.
UnitedHealth had projected that it would serve 2 million people with a variety of consumer products in January 2005, including 850,000 with health-related financial accounts. With Definity, that will increase to 2.5 million people covered, with 1.3 million holding savings accounts.