If you were looking for signs on whether or not states will choose to expand Medicaid, check out today's announcement that WellPoint is acquiring Amerigroup, one of the largest Medicaid plans in the country.

The acquisition will expand WellPoint's footprint in the Medicaid market by about 2 million members, two and a half times its current Medicaid membership.

It signals that the country's second-largest health insurer wants to accelerate its Medicaid growth and go head-to-head with UnitedHealthcare, the most diversified of the national MCOs. UnitedHealthcare has about 3.2 million Medicaid members and has been aggressively expanding this part of its business.

WellPoint is clearly confident that most states will choose to participate in the Medicaid expansion that is part of healthcare reform. The Supreme Court recently upheld healthcare reform but allows states to opt out of Medicaid expansion if they so choose without losing federal funding. If all states were to participate, the Medicaid rolls would grow by 16 million to 20 million over the next few years.

By acquiring Amerigroup, WellPoint is also making a play for the dual-eligible business, coordinating the Medicare and Medicaid benefits of those eligible for both programs. Efforts to start demonstration programs to integrate dual-eligibles into managed care are underway in a number of states where Amerigroup operates, including Texas, Virginia, New York, Tennessee, Ohio, and Washington. In its most recent earnings call, Amerigroup officials stressed discipline in competing for Medicaid contracts only in markets where they can make a profit and where they will be positioned to compete for future long-term care and dual-eligible opportunities.

Amerigroup has been experiencing growing pains. New business in Texas and Louisiana boosted first-quarter revenues this year but lowered earnings, as the insurer integrated a large number of new members and ramped up business operations in new markets. In its first-quarter earnings call, Amerigroup indicated it was still on pace to increase revenue by 40 percent this year, with expansions in existing mar¬kets, new contracts in several states, and the acquisition of one of New York's largest managed Medicaid companies, Health Plus. The company reported earnings of $195.6 million on $6.32 billion in revenue in 2012.

WellPoint announced it plans to acquire Amerigroup for about $4.9 billion.

So the feeding frenzy has begun. In the coming months, expect WellPoint to join hospitals in heavily lobbying states to expand Medicaid coverage. The two groups may also convince large employers that the expansion would dramatically reduce the ranks of the uninsured and would thus lower the need for hospital cost-shifting. That reduction in hospital cost-shifting to private payers would thus lower premium inflation for both insured and self-insured groups. And expect No. 1 UnitedHealthcare to be right there with No. 2 WellPoint looking for additional Medicaid plan acquisitions, especially in states ramping up managed care for dual eligibles. Aetna, Humana, and other multi-segment players will also be eyeing Medicaid expansion. Behind UnitedHealthcare and Amerigroup, the next-biggest Medicaid insurers are Centene, Molina Healthcare and WellCare, followed by numerous sizeable regional and provider-owned plans.

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