April 17, 2007 / 2:23 PM / 12 years ago

UPDATE 1-AARP, UnitedHealth, Aetna offer new health plans

(Recasts, adds analyst comment, shares)

WASHINGTON, April 17 (Reuters) - The influential organization for the elderly AARP has expanded its line of health insurance plans for older Americans in conjunction with UnitedHealth Group Inc. (UNH.N) and Aetna Inc. AET.N, AARP said on Tuesday.

AARP and UnitedHealth, which already offer a number of joint insurance plans, will add a Medicare Advantage managed care plan with prescription drug benefits for people who qualify for Medicare.

Shares of UnitedHealth, the largest U.S. health insurer by market value, rose 2 percent. The announcement relieved investors who worried the insurer’s stock-options scandal might hurt its relationship with AARP.

The typical Medicare Advantage private plan provides an alternative to the nation’s traditional insurance program for the elderly and disabled. Instead of direct government payment for medical care through a fee-for-service system, Medicare Advantage plans usually limit the patient’s choice of medical providers in exchange for more benefits.

The new plan is part of a broader seven-year agreement between the two organizations to provide plans featuring financial incentives and penalties based in part on clients’ management of chronic conditions such as diabetes and obesity, AARP said.

Their Medicare Advantage plan will be offered for two years as opposed to the minimum one year required by the federal government in an attempt to help stabilize the market, the group added.

“We’re trying to change the marketplace,” AARP Chief Executive William Novelli said.

AARP’s new arrangement with UnitedHealth is expected to bring in an extra $22 million a year in royalties for the group, which said it could not comment on what the deal was worth to the insurer. It also said it aimed to boost current enrollment from 7 million AARP members in the insurer’s various plans to 14 million by 2014.

AARP has about 38 million members overall.

“We are committed to using the resources across our enterprise to develop new ways to improve the health of AARP’s millions of members and increase access to high quality, affordable health care for all Americans,” UnitedHealth Group Chief Executive Stephen Hemsley said in a statement.

The insurer did not offer financial details about the arrangement.

Previously, UnitedHealth’s exclusive 10-year deal with the group generated about $5 billion in revenues for insurer, making up roughly 2 percent of its operating earnings, according to a JP Morgan analyst note earlier this month.

Stifel Nicolaus analyst Thomas Carroll said the announcement removes a cloud over UnitedHealth’s stock caused by investors worried the AARP relationship was at risk. UnitedHealth’s former CEO left the company last year after its independent counsel found evidence of backdated stock options.

“This announcement of a long term and expanded contract should remove this fear and, in our view, indicates that the UnitedHealth relationship with AARP remains strong,” Carroll wrote in a research note.

AARP separately said it will offer an insurance plan through Aetna for Americans ages 50 to 64 who are not yet old enough to qualify for Medicare, also under a seven-year contract.

About 18 million AARP members fall in that age group, Aetna said in a statement. It also declined to say how much the deal would be worth or how many members it expected to enroll.

Both companies are expected to launch their new plans by Jan. 1.

UnitedHealth shares rose $1.06 to $54.91 in morning trade on the New York Stock Exchange. Aetna shares rose 59 cents, or 1.3 percent, to $45.95. (Additional reporting by Lewis Krauskopf in New York and Kim Dixon in Chicago)

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