A Lane County health care insurance company has been in merger talks with Bend-based Clear Choice Health Plans Inc. since midyear and says a combined company would be more efficient and better compete against larger insurers.

No offers have been made, but representatives from Eugene-based Agate Resources Inc. met with Clear Choice administrators and board members two weeks ago to discuss a possible business merger, Agate CEO Terry Coplin said Tuesday.

“The discussions are not at a point where I can talk about what the final form of what that will look like,” Coplin said. “But if there were a combination, this new company will have a greater opportunity for growth.”

Clear Choice, a publicly traded company that sells commercial insurance for businesses and low-income customers in Oregon and Montana, confirmed it has met with Agate officials but appeared to reject a merger.

“The company’s management team and board of directors has reviewed Agate’s presentation and does not believe the unsolicited discussions with Agate Resources to merge or otherwise combine the two company’s (sic) fits with our strategic initiatives to diversify our lines of business and geographic locations, and would not be in the best interest of its shareholders,” the company wrote in an e-mail to The Bulletin on Tuesday.

While Clear Choice’s third-quarter revenues increased 26.2 percent due to growing membership, net income fell 37.4 percent to $491,000, according its most recent earnings report.

Both Agate and Clear Choice provide Medicaid coverage for the Oregon Health Plan and Medicare coverage in Oregon. Clear Choice also offers commercial coverage in Oregon and Medicare and commercial coverage in Montana.

Clear Choice has seen depressed profits from rising medical reimbursement and administrative costs over the past year. The company also has suffered hiccups from outsourcing its claims processing system earlier this year and from its move into a new $17 million, 70,000-square-foot headquarters building, which cost more than the company expected.

A partnership between the two companies could help Agate and Clear Choice in an increasingly competitive, high cost health care insurance environment, Coplin said. A combination would result in greater cost savings and would help the new company compete with larger health insurance providers, he said.

“It could offer the advantage of economies of scale for future expansion and more administrative efficiencies,” Coplin said.

Coplin lauded the health care providers in the Clear Choice network, which was the nation’s first provider-owned insurer to roll out a version of Medicare Advantage, a managed-care approach to Medicare coverage, in 1998. Similarly, Agate is a physician-owned company, albeit privately held.

“Clear Choice’s physicians and medical practitioners are well known for the high-quality services they deliver,” Coplin said. “A partnership between Lane County physicians and Deschutes County physicians would be a powerful partnership.”

Industry officials acknowledged Clear Choice could be an attractive takeover target.

“I’m not surprised (Clear Choice and Agate have discussed a merger) because the costs have just gotten so high,” said Doug Riggs, lobbyist for the Oregon Primary Care Association. “Administrative costs for health care have grown to the point where having a single structure for a greater number of people makes sense if you are going to survive.”

Clear Choice, whose stock is traded over the counter and has dropped about 24 percent in value in the last two months, would look attractive as an investment because it holds higher value than its stock is worth, said James Bellessa, a securities analyst for D.A. Davidson, based in Great Falls, Mont.

Clear Choice sells at a sharp discount to its book value, a measurement of what the company is worth when factoring in assets and total shares, Bellessa said.

The company’s book value is $27 per share, he said. Its stock closed Tuesday at $8.50 per share, down from a 52-week high of $17.90, Bellessa said. As recently as July 2007, the stock was valued as high as $32, he said. “If you took control of this thing and liquidated the liabilities, you would have something worth $25 per share roughly. It could be a good value for the buyer.”

The results of an acquisition would not likely change business immediately in Central Oregon for Clear Choice customers, Bellessa said. But in the long run, management could change and the company’s headquarters could potentially shift to Eugene, he said. “This is a rising-cost environment,” he said. “One of the higher costs of our society is in medical care. It would be natural to see increasing consolidation, just like in the banking industry.”

James Sinks contributed to this report.

The companies

Agate Resources Inc. is a privately held company with 120 employees and insurance coverage in Lane and Jackson counties. The physician-owned company owns Lane Individual Practice Association, which serves 28,000 Medicaid, or Oregon Health Plan, members in Lane County, and Trillium Community Health Plan, which serves 3,000 Medicare members in Lane and Jackson counties.

Bend-based Clear Choice Health Plans Inc. is a publicly traded health insurance company with more than 46,000 commercial, Oregon Health Plan and Medicare members in Oregon and Montana. In September, the company reported 130 employees.