continues to bet big on a possible cure for runaway medical costs.
The company on Monday announced plans to purchase another leading provider of so-called consumer-driven health plans. It has agreed to pay $300 million in cash for privately held Definity Health, a pioneer launched six years ago by one of the company's own. It paid $500 million for Golden Rule, a similar company, last year.
Both Definity and Golden Rule specialize in the health savings accounts, or HSAs, made possible under new Medicare laws and
embraced by the Bush administration as a cure for skyrocketing health care costs. The high-deductible plans encourage consumers to save -- and shop -- for their own health care and allow unspent funds to keep accumulating, with interest, for future needs.
The acquisition will allow UnitedHealth to expand by 500,000, or 25%, the number of customers served by its consumer-based products. It is expected to be "slightly accretive" to the company's 2005 earnings.
Shares of UnitedHealth fell 1.1% to $83 on news of the latest deal.
Many observers see HSAs as a clear wave of the future. Indeed, in testimony before Congress this spring, one HSA advocate predicted that the new plans could "inaugurate fundamental reform" in the nation's health care system.
"The idea behind HSAs is quite simple: Individuals should be able to manage some of their own health care dollars through accounts they own and control," John Goodman, president of the National Center for Policy Analysis, said. And "they should be able to profit from being wise consumers of medical care by having account balances grow tax-free and, eventually, be available for nonmedical purchases."
Goodman went on to single out plans offered by Definity as particularly successful. Definity currently offers CDH plans to 95 companies, including such major employers as
. It boasts a customer satisfaction rate of more than 90% -- and a re-enrollment rate that's an even more impressive 95%.
Definity, which is profitable, expects to generate $100 million in revenue next year. After pushing in recent months toward an initial public offering, the company is now looking to expand through its union with UnitedHealth instead.
"The assets and support of UnitedHealth Group will allow Definity to maintain its leadership position and better serve its customers, while continuing to build upon a history of consumer-driven innovations," Definity CEO Tony Miller said.
Miller himself has already enjoyed spectacular success.
Originally, Miller tried -- but failed -- to convince his former colleagues at UnitedHealth to buy into the CDH concept back in 1998,
reported four years later. Miller and two others then set out on their own,
"They told us three guys couldn't change health care," Miller explained to the magazine.
UnitedHealth would follow up by offering its own CDH product in 2002. By then, however, Definity was already on a roll. It signed up its first two customers -- including giant insurance broker Aon -- in 2000. It later went on to attract the likes of Whirlpool, which last year saw 40% of its insurance-eligible employees enroll in Definity plans, according to
Inside Consumer Directed Care
Definity portrays itself as the nation's leading provider of CDH plans.
, headquartered in Definity's home base of Minnesota, this year pegged the company's share of the consumer-driven market at 40%.
Moreover, Goodman has pointed to Definity customers as especially pleased with the CDH concept in general -- and with the company's offerings in particular.
"Almost three-quarters of Definity Health members agreed that consumer-driven plans are better than managed care, compared to only about one-third of enrollees in other types of health plans," Goodman told Congress. And "in Definity Health's ... plan, only about 1% to 2% reported being very dissatisfied."
To be sure, however, HSAs have attracted their critics. Some fear that HSAs will end up serving only the healthy and wealthy, leaving traditional insurance companies struggling to cover the poor and sick on their own. They also worry that HSA customers may forgo preventive care in an effort to save money and wind up facing more expensive health care problems as a result.
But Goodman, for one, insists otherwise. Once again, he pointed to Definity's results as evidence. He said that Definity customers were more -- not less -- likely to seek preventive care than traditional insurance customers. He also said they are also far more likely to participate in wellness programs and recognize that lifestyle choices impact health care costs.
"Giving employees more choice and control over their health care makes good sense," he concluded. "It leads to lower costs and more control over the kinds of care they prefer."
Clearly, UnitedHealth believes in this emerging -- and increasingly popular -- offering. Over the past year, two of the company's three largest acquisition targets have been major providers of CDH plans. Moreover,
Inside Consumer Directed Care
reported, UnitedHealth this year began offering CDH products to its own 30,000 employees. The trade publication described that move as "a tremendous vote of confidence" in the CDH plans.