The deal comes as baby boomers continue to swell the program's rolls.
UnitedHealth Group Inc. bolstered its position as the largest provider of Medicare Advantage insurance Tuesday with the announcement that it would acquire special-needs insurer XLHealth Corp.
Minnetonka-based UnitedHealth didn't disclose the price and declined to comment on earlier reports that UnitedHealth and WellPoint were battling to buy XLHealth for $1.5 billion to $2 billion.
XLHealth serves roughly 113,000 Medicare Advantage participants in Arkansas, Georgia, Maryland, Missouri, South Carolina and Texas. The Baltimore-based company specializes in chronically ill people who are simultaneously eligible for Medicare and Medicaid, health insurance for the poor.
"Combining XLHealth's substantial capabilities ... with UnitedHealthcare's breadth in both Medicare and Medicaid will significantly enhance our ability to serve older Americans," UnitedHealthcare CEO Gail Boudreaux said.
UnitedHealth already leads the nation in the provision of Medicare Advantage, which is private insurance approved by the government to offer care to Americans 65 and older who meet certain criteria.
"This deal makes a lot of sense for UnitedHealth," said Sheryl Skolnick, an analyst at CRT Capital in Stamford, Conn. Managed-care "is likely to get a lot more attention from the federal and state governments in an effort to reduce costs."
Medicare continues to be a magnet for U.S. health insurers as the rising number of retirees increases the ranks of Medicare Advantage plans. Such plans account for 25 percent of Medicare enrollment, according to Reuters, though that percentage is expected to rise as Medicare beneficiaries can choose to receive their benefits through private health insurance plans. UnitedHealth, the largest U.S. health insurer by sales, serves the most Medicare customers with more than 7 million as of Sept. 30, company filings show.
Financial analysts say the acquisition of XLHealth will position UnitedHealth to maintain its Medicare Advantage dominance. In addition to managing care of the chronically ill, Medicare Advantage is expected to grow in enrollment as budget deficits force states to cut spending and curb eligibility for traditional Medicare coverage.
XLHealth expects to generate revenue of more than $2 billion in 2012, UnitedHealth said, adding that its new acquisition will expand services next year to Illinois, Indiana, Iowa, New Mexico, New York and Wisconsin.
UnitedHealth stock dropped 0.05 percent during trading on Tuesday, closing at $44.42.
Bloomberg News contributed to this report. Jim Spencer • 202-408-2752