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Internet

AOL offers health care deal

In an unusual move, the online giant adds a health insurance provider, Provident American, to its tenant roster.

America Online (AOL) today announced a deal that could increase members' dependency on the online service.

As part of AOL's ongoing strategy of cutting deals with businesses that pay AOL for the right to market to its members, AOL agreed to allow a health insurance provider, Provident American, to offer AOL members discounted online insurance.

The deal, which appears to be unique, makes Provident the exclusive provider of health insurance over AOL's network. The service is scheduled to launch in October.

Other services AOL has launched include tax preparation and other financial services from Intuit, discounted long distant rates from Tel-Save, and real estate offerings.

But this deal appears to stray from the usual in that it offers members something much more personal. Although members are somewhat tied to their online service or ISP for their email account, bundling special phone rates or insurance with membership is added assurance that members won't stray impulsively. Such relationships could help AOL preserve members despite increased monthly service fees, which go into effect April 1.

"With most products, the transaction is a one-time deal, and you're not connected to the channel," said Forrester Research analyst Kate Delhagen. "But with a service, if you start to interact and connect through the channel, you become more attached to it over time. This will keep people online longer and on an ongoing basis."

The deal makes Provident the exclusive provider of health insurance over AOL's proprietary network and its Web site at AOL.com.

"It's the first paperless health insurance," said AOL spokesman Tom Ziemba. "The customer can research options, enroll in the service, get billed online, and process claims electronically. The convenience is really tremendous over traditional health insurance."

Along with convenience will come savings, AOL said. Those who sign up online, either through AOL itself or through its Web site, will get a 12 percent discount off what they would pay through an insurance agent.

Under terms of the one-year deal signed this week, AOL will collect $8 million in guaranteed payments, with $32.5 million to follow if Provident chooses to renew for two more years. AOL received warrants to buy up to 300,000 shares of Provident American common stock and also may receive warrants to buy another 450,000 shares depending on how many people sign up online for the insurance.

The deal has the potential to be mutually beneficial, with AOL gaining cash and Provident reaching a vast new customer base.

Provident's stock recently has been on a wild ride, trading as low as 2-1/8 two months ago, down from a 52-week high of 10-1/2 in April 1997. The stock has been rebounding in recent weeks, but today fell 22 percent to 5-1/4 on news of a delayed audit and an expected loss of more than $20 million for 1997. The company had a net income of $16 million for 1996.

Analysts blamed Provident's poor financial performance on one-time write-offs on one hand, and the dismal state of the health insurance industry on the other.

In an attempt to return to profitability, the company today announced not only its deal with AOL, but also plans to raise its premium rates and its fees for out-of-network usage.

The company also has farmed out its customer service and technological support to HealthPlan Services, and the creation and management of its new Web site to newly formed subsidiary Insurion.

Provident is creating the Web site in conjunction with its deal with AOL. The two services are expected to launch simultaneously in the fall.

Thomas Bruderman, equity analyst with Westport, Connecticut, investment firm Canterbury Companies, applauded Provident's deal with AOL as well as its rate hikes.

"With the new pricing, Provident will be profitable in 1998 with or without the Internet," he predicted. "The Internet could be the icing on the cake."