Acquisition of Lumenos Could Bolster Sector

By Staff Report

May. 24, 2005

The purchase of consumer-driven health care pioneer Lumenos by health care giant WellPoint means the last big independent name in the consumer-driven field is off the market. The $185 million deal follows the purchase of another trailblazing company, Definity Health, by UnitedHealth Group in November.

It remains to be seen whether folding Lumenos into WellPoint will blunt the smaller company’s reputation for innovation and market leadership in advancing health insurance products and cost-cutting strategies. But both companies say the strategic marriage will make the partners stronger.

Lumenos will continue to operate from its headquarters in Alexandria, Virginia, and keep its executive staff intact.

“Overall, we are really thrilled with this,” says Doug Kronenberg, Lumenos’ chief strategy officer. “We will be able to continue to do the things we have been doing.”

Kronenberg says he sees advantages for both companies. “It brings together a combination of consumer-driven expertise and brand awareness in the marketplace on Lumenos’ part, coupled with the distribution and resources of WellPoint,” Kronenberg says. “That will move the whole consumer-driven movement forward at a pretty significant pace.”

Once Definity was picked up by UnitedHealth there was widespread speculation that Lumenos would be bought by another major player in the field. Aetna, Cigna and Humana are all marketing consumer-driven health plans. WellPoint, created last year through a merger between Anthem and WellPoint Health Networks, was developing its own consumer-driven plans for its Blue Cross and Blue Shield products. Picking up Lumenos brings it up to speed in a hurry.

“It finally gets the Blues plans seriously into the consumer-driven market,” says Alexander Domaszewicz, a consultant with Mercer Human Resource Consulting. “Lumenos has a passion for changing the health care system, and its customers appreciate its rapid pace of innovation.”

Domaszewicz says Lumenos’ consumer-driven plan is much more user-friendly than the one developed by WellPoint. He wonders whether that spirit will remain or get lost behind the corporate walls of WellPoint.

“Indications are that WellPoint is not going to let that happen,” Domaszewicz says. “But what about three years from now?”

Definity and Lumenos are credited with leading the consumer-driven movement by showing the larger health insurers that a Web-based system that offers high deductibles and freedom of choice to consumers can work. Lumenos developed health reimbursement and health savings accounts to go along with information and services that give plan members incentives and freedom in choosing health products.

“Without Lumenos and Definity, health savings accounts never would have happened,” Domaszewicz says. “They drove HSAs to widespread acceptance.”

Lumenos, founded in 1999, serves 214,000 consumers, a pittance compared to WellPoint’s 28.5 million plan members. Its $45 million in revenue represents less than 1 percent of WellPoint’s annual revenue and is not expected to have an impact on WellPoint’s earnings.

Like other health insurers, WellPoint is experiencing a growing demand for consumer-driven products.

“This acquisition allows us to quickly build upon and enhance our consumer-driven health programs with an overall strengthened portfolio of products,” WellPoint spokesman Jim Kappel says.

Douglas P. Shuit

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