The parent of UnitedHealthcare of New England has been growing by acquiring companies specializing in "consumer-driven" health plans that shift more costs to subscribers.

01:00 AM EST on Tuesday, November 30, 2004

MINNEAPOLIS -- UnitedHealth Group Inc., the nation's largest health insurer, is buying privately held benefits provider Definity Health Corp. for $300 million in cash, extending its push into products with high deductibles that require more patient accountability.

"This kind of acquisition really fits the direction of how UnitedHealth has been growing recently," said Michael Obuchowski, a money manager at Altanes Investments in New York, which owns UnitedHealth shares. "They find specialized health-care companies and buy them."

Definity Health provides benefits to about 100 employers in self-funded plans. The company estimates it will have 500,000 customers in all 50 states by January.

After the acquisition, UnitedHealth will have about 2.5 million members in so-called "consumer-driven" health plans that typically have higher deductibles.

Under such plans, employees are given a set amount of money to pay medical expenses. Once that is used, the individual has to pay a significant deductible before traditional insurance kicks in. The idea driving such plans, which are still not widely used, is that if employees have to pay more out of their own pocket for care, they will spend more wisely.

"We were the company that pioneered consumer-driven health care," Chris Delaney, a Definity spokesman, said yesterday after the deal was announced.

The deal disclosed yesterday follows UnitedHealth's 2003 purchase of Golden Rule Financial Corp., a pioneer in medical savings accounts. Such programs combine a tax-free account that can be used toward medical expenses along with a high-deductible insurance plan with low premiums. The tax-free account can be funded either by the employer or the worker or some combination of the two. The employee's contribution to the account is paid with pretax dollars, lowering their taxable income. An individual buying such a plan in the open market can take the contribution as a tax deduction.

President Bush is looking to health savings accounts to expand coverage to the uninsured and is expected to renew his push for legislation that provides tax benefits to businesses and their employees if they contribute to an HSA.

He also wants Congress to give low-income families a $1,000 direct contribution to their HSAs, along with a tax credit to help them purchase health insurance.

UnitedHealth spokesman Mark F. Lindsay said Minneapolis-based Definity was attractive because its back-office technological innovations make many health-care transactions less irksome. That made it a good fit with UnitedHealth, which has made a priority of becoming more consumer friendly, he said.

"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," said Tony Miller, Definity chief executive officer.

United CEO William McGuire is adding members through acquisitions while U.S. job growth is too slow to expand health-plan rolls. He bought Oxford Health Plans Inc. for $4.6 billion in July, gaining 1.5 million subscribers in the New York metropolitan area. In February, McGuire bought Mid Atlantic Medical Services Inc. to expand around Washington, D.C.

Following the Definity acquisition, UnitedHealth projects that it will serve 2.5 million consumers in January 2005, with 1.3 million using some sort of health-care account.