A woman shops at a Walgreens drugstore in Los Angeles. The chain is in a partnership with Britain’s Alliance Boots, and the two have struck a deal with pharmaceutical distributor AmerisourceBergen.NICK UT/The Associated Press
Although Catamaran Corp. lost only a small chunk of its business on Wednesday, its stock posted a near-double-digit loss over concerns for the company's customer base.
Catamaran's slide was sparked by the announcement that Walgreen Co., the largest drug store chain in the United States, will pay for 160,000 of its employees to move to a private health exchange and buy their own coverage.
As the pharmacy benefits manager for Walgreen, Catamaran will lose some revenue as a result, but only about $100-million annually, representing less than 1 cent in per-share earnings, said Michael Cherny, an analyst at ISI in New York. That's not nearly enough to explain the plunge that took 9 per cent off of the company's share price, which closed at $51.94 on the TSX.
In June, by contrast, Catamaran won a 10-year contract to manage drug benefits for clients of Cigna Corp., the fourth-largest health insurer in the United States. That contract, once fully implemented, will bring in up to $5.5-billion of revenue, representing millions of clients.
The disproportionate market reaction reflects worries that the Walgreen plan change is an early indicator of a coming transformation of corporate health coverage. International Business Machines Corp. and Time Warner Inc. have already gone the same route – offloading their employees onto private exchanges.
Those exchanges themselves aren't directly linked to the Affordable Care Act, but instead closely resemble the public exchanges being set up under Obamacare. Whether Walgreen's move is an unintended consequence of health care reform is up for debate.
But other big private employers are likely to consider following suit.
"There's uncertainty around what will happen to the rest of the market now that a large U.S. retailer has moved over its employee base," Mr. Cherny said.
But there are plenty of other employers who want to "maintain the same level of coverage for their employees and retirees," he said. "Without knowing for certain how this will play, it's tough to get that concerned."