WellPoint (NYSE: WLP) Rides the Obamacare Profit Wave Even Higher

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Merger Monday lived up to its moniker today with news that WellPoint Inc. (NYSE: WLP), one of the largest U.S. health insurers, inked a deal to acquire Amerigroup Corp (NYSE: AGP).

The $4.9 billion deal would make the Indianapolis-based company the top private manager of Medicaid benefits.

The strategic move underscores WellPoint's bid to shore up its Medicaid business following the recent Supreme Court decision upholding Obamacare. The combined company will have a Medicaid business presence in 19 states, the largest in the nation.

The transaction is expected to close in early 2013. Under the terms of the all-cash deal, WellPoint will pay a lofty $92 a share for all outstanding shares of Amerigroup, a nearly 43% premium to the company's closing price prior to announcement.

WellPoint CEO Angela F. Braly said in a statement, "We believe that this combination will create an industry in the government sector serving Medicaid and Medicare enrollees. This is an opportunity to capitalize on the strengths of both companies to better serve our members and position our companies for future growth as the health insurance industry changes."

WellPoint has been on a buying spree of late. In May, the company purchased contact lens retailer 1-800-Contacts, and last year it picked up CareMore, a provider of managed care for the elderly.

Obamacare and Medicaid

Under the Obama administration healthcare overhaul, Medicaid, the public program for the poor, will be extensively expanded.

By 2014, Obamacare will extend Medicaid to all those with incomes of up to 138% of the federal poverty level.

The implications from this development are massive. A report from the Urban Institute reveals some 22 million people without insurance at present, roughly half of America's uninsured, could qualify for Medicaid.

Republicans vehemently vow to repeal Obamacare before it ever takes effect, and the topic is a heated and prominent issue in Election 2012. Twenty-six states oppose the Medicaid expansion, as well as the individual mandate that requires everyone to buy health insurance or pay a penalty (tax), and adamantly maintain they will not implement these portions of Obamacare.

Congress ruled that the states don't have to go along with the Medicaid expansion. Currently, Washington covers 50%-83% of each state's Medicaid program, and states that opt out of expanding coverage can keep the money they have already.

Texas Gov. Rick Perry wrote in a letter today to U.S. Health and Human Services Secretary Kathleen Sebelius, "If anyone was in doubt, we in Texas have no intention to implement so-called state exchanges or to expand Medicaid under Obamacare. I will not be party to socializing health care and bankrupting my state in direct contradiction to our Constitution and our founding principles of limited government."

WellPoint's Braly said in a conference call Monday that the law's expansion of Medicaid, set to begin in 2014, "is only one element here."

She added, "We expect organic growth in the Medicaid segment. We did this deal no matter what and decided to do it no matter what the Supreme Court decided."

Looks like all's well at WellPoint either way.

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