(FORTUNE Magazine) – UnitedHealth Group The mostly jobless economic recovery has been hard on health insurers that grow by adding employees to their rolls. Now it's prompting a wave of consolidation. In late April, just months after completing the acquisition of two-million-member Mid Atlantic Medical Services, UnitedHealth Group (UNH, $61) said it would pay $4.8 billion in stock and cash for Oxford Health, a 1.5-million-member health insurance company based in Trumbull, Conn. The deal will solidify United as the nation's second-largest insurer, behind the 26-million-member colossus formed by Anthem's purchase of Wellpoint.

Oxford Health Plans Based near the New York metropolitan area and the 50-odd FORTUNE 500 companies in the region, the $5.4 billion Oxford was a prime takeover target. Its stock, in fact, nearly doubled over the past year with investors anticipating a buyout. Talks between Oxford and WellChoice, New York's largest health insurance company, collapsed just a week before UnitedHealth jumped in. Oxford's key location will provide stronger regional buying power and allow Minnesota-based United to compete in the nation's densest health-care market, where 20 million people have health insurance.

What it means for you Sanford C. Bernstein health-care analyst Ellen Wilson calls the deal a win-win situation. Oxford shareholders benefited from the big run-up. And United wins strategically without overleveraging itself. "United needs access to the big national accounts that are based in New York or have pockets of employees here," says Wilson. United, which earned $28.8 billion in 2003, says the merger will reduce annual expenses by $80 million to $100 million pretax over the next year to 18 months while immediately adding about 16 cents a share to annual earnings. Although the company must integrate Oxford at the same time as Mid Atlantic Medical Services, analysts aren't worried. As long as UnitedHealth can hold on to Oxford's customers, the deal looks healthy. --Julia Boorstin