DEALTALK-Mid-sized HMOs may see takeout-premium stock pop

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By Lewis Krauskopf

NEW YORK, May 8 (Reuters) - Shares of small and regional U.S. health insurers may rise in the coming months as they are increasingly viewed as takeout targets, even as the wild card of healthcare reform restrains any near-term consolidation.

Three mid-sized health insurers that recently took steps to put troubles behind them are possible prey: Coventry Health Care Inc (CVH.N: Quote, Profile, Research), Health Net Inc (HNT.N: Quote, Profile, Research) and WellCare Health Plans Inc (WCG.N: Quote, Profile, Research).

"To the extent that healthcare reform creates consolidation, you could start to see companies like Coventry and Health Net and WellCare beginning to attract a consolidation premium," Stifel Nicolaus analyst Thomas Carroll said.

Major acquisitions are doubtful while Congress debates healthcare reform this year, analysts say. Not only is there uncertainty over potential changes to the market, but striking a high-profile deal just as lawmakers question the amount of competition in the sector might seem politically foolish.

As reforms take shape, however, the desire to get bigger could manifest in deals later this year or next year.

"Reform creates a need for scale," said Bob Atlas, chief operating officer of Avalere Health, a research and strategic advisory firm.

"For commercial players to be able to scale up, to have strong geographic footprints, breath of products, breath of provider networks is going to be a positive -- that's what an acquirer would be looking for," Atlas said.