Aetna, UnitedHealth Win Tricare Contracts, Replacing Rivals

The U.S. Department of Defense awarded billion-dollar military health care contracts to Aetna Inc. (AET) and UnitedHealth Group Inc. (UNH), ending an alliance with two of the health insurers' competitors.

Aetna was selected to take over the program in the North region, replacing Health Net Inc. (HNT), while Humana Inc. (HUM) was removed in the South by UnitedHealth following more than a year of government review.

Both Humana and Health Net hinted they may protest the decision, although the companies were waiting for further information.

Following the news, Health Net's shares slumped 19% to $11.50, while Humana fell 5.2% to $29.01. Meanwhile, Aetna's shares were up 2.5% at $26.99 and UnitedHealth's shares rose 2.6% to $25.65.

Some analysts have suggested the program means the most to Health Net.

The TRICARE program, which provides civilian health benefits for military personnel, military retirees and their dependents, awarded a base contract of $2.48 billion to Aetna and $3.73 billion to UnitedHealth.

Aetna's total potential contract, including a 10-month base period and five one-year option periods was estimated at $16.68 billion. For UnitedHealth, the figure was estimated at $21.83 billion.

Aetna was awarded the contract to assist the military health system for those eligible in the North region, which includes 21 states and the District of Columbia, while UnitedHealth's contract covers 11 states in the Southern region.

Aetna said it would begin managing the plan in the region as of April 1, 2010.

"We're eager to begin serving the beneficiaries of the TRICARE program and will immediately set our planned transition activities into motion," said Susan M. Peters, president of Aetna Government Health Plans.

Health Net said it was "disappointed" not to be selected for the program, and said it would determine whether to accept or challenge the award decision within two weeks of the debriefing.

For its part, Humana said due to the complexities of the bid award and protest process, the company couldn't anticipate what impact, if any, the loss of the TRICARE contract would have on its earnings this year.

"Our company will evaluate its strategic options with respect to the government's decision, including protesting the award, and will act expeditiously to best position Humana for continued success," said Dave Baker, president and chief executive of Humana's military services subsidiary.

-By John Kell, Dow Jones Newswires; 212-416-2480; [e-mail]