Humana's purchase is latest move to consolidate Medicare Advantage market

MD Care, a Medicare Advantage HMO plan based in Signal Hill, Calif., has become the third California Medicare Advantage plan acquired this year, and the second such acquisition by Humana.

Louisville, Ky.-based Humana announced Sept. 23 that it will buy MD Care for an undisclosed sum.

MD Care has about 15,000 members in Los Angeles, San Bernardino, Orange and Riverside counties. It sells plans that feature no-cost premiums and no co-pays, and touts its commitment to preventive care for its members. MD Care's revenue in 2010 was $155 million.

"As Humana continues growing its Medicare business in the western U.S., MD Care offers an opportunity to expand our Medicare footprint and the suite of products and services we offer in California," Thomas J. Liston, senior vice president of senior products at Humana, said in a news release announcing the deal.

Humana just completed a similar purchase with its acquisition of Oakland, Calif.-based Arcadian Management Services, a Medicare Advantage plan with 64,000 members in 15 states.

Humana has been trying to boost its membership to increase income.

"Membership growth is now one of the key drivers of earnings and cash flow growth in the company, because of that margin we try to remain constant around -- the 5% operating pre-tax," Jim Bloem, chief financial officer and executive vice president at Humana, said June 9 during an investor conference.

Humana is not alone in trying to increase its Medicare Advantage business. WellPoint bought CareMore, a Cerritos, Calif.-based Medicare Advantage plan in June, reportedly spending $800 million on the acquisition.

Analysts believe smaller Medicare Advantage plans may be trying to avoid the struggle of eking out a reliable profit margin with shrinking payments.

The Patient Protection and Affordable Care Act sets out a decrease in payments to Medicare Advantage plans to more closely align them with what Medicare spends on enrollees in the traditional fee-for-service plan.

However, the reform law also calls for financial bonuses for high-performing Medicare Advantage plans. The plans will have to hit a minimum 85% medical-loss ratio beginning in 2014, meaning they may spend only 15% of premiums on administrative costs and profit.