PacifiCare Bonuses & Reserves Enough to Health Care for 278,000 Californians For An Entire Year

Sacramento, CA — Consumers, nurses and patient advocacy groups joined price-gouged Sacramento-area patients to urge regulators to oppose the merger of HMO giants PacifiCare of California and United Health Group, which will likely result in higher health care costs for all Californians. Already, in Sacramento County 1 in 5 adults between the ages of 18 and 64 cannot afford health insurance.

At risk is $445 million in bonuses to PacifiCare executives, and $389 million in excess reserves that could be remove from the state unless protected by regulators. The Foundation for Taxpayer and Consumer Rights (FTCR) said that future health insurance rate increases must be reviewed to ensure that merger costs are not passed on to patients and business owners.

“Patients need new protections to ensure that premiums reflect the cost of medical care, not the greed of health care profiteers and Wall Street financiers,” said Jerry Flanagan, Health Care Policy Director for FTCR. “Health care should no longer be treated like a second class citizen in California. Voter approved Proposition 103 has saved California drivers $23 billion by requiring insurers to prove that their rates are not excessive or unfair. Health insurers should be required to play by the same rules as auto and home insurers.”

At the public hearing, FTCR called on the Department of Managed Health Care (DMHC) to oppose the merger unless key commitments are made, including guarantees that patients will not face rate increases to pay for the cost of the merger. Consumers can send a comment to regulators about the merger here.

“The current system puts profits before patients and our health care dollars are financing 9-figure payouts for HMO executives,” said Deborah Burger, President of the California Nurses Association (CNA). “As a result, fewer patients can afford health insurance and less money is available for the front lines of medical care. That’s the inevitable result of market-driven, for-profit health care.”

The DMHC, whose director is a Schwarzenegger appointee, has the authority to approve or deny the merger. PacifiCare has contributed $78,500 to Governor Schwarzenegger’s various fundraising committees — enough money to provide health care for 8 families for an entire year.

According to documents filed with the state in June of this year, PacifiCare has at least $389 million in excess reserves that could be removed by UnitedHealth unless regulators require the funds to remain in the state. PacifiCare’s excess reserve is sufficient to provide coverage for 130,000 Californians for an entire year (based on annual cost of $3,000 per person). The $445 million in bonuses could provide health care for another 148,000 Californians for an entire year.

“Private health insurers spend 10 times more on overhead, administration and executive salaries than public health care programs like Medicare,” said Lupe Alonzo-Diaz, Executive Director of the Latino Coalition for a Healthy California. “As a result, 6 million Californians can’t afford health insurance and millions more are underinsured. Real reform must require HMOs to put more of the premium dollars they collect into hands-on patient care.”

FTCR recently launched a new Internet campaign, complete with flash video animation, targeting excessive health insurance costs in the wake of a recent merger that created the nation’s largest health insurer, WellPoint, and awarded former Blue Cross of California CEO Leonard Schaeffer $250 million in cash and stock. Click here to watch the video.

“We are deeply concerned about another outrageous merger that’s siphoning money to corporate executives at the expense of the public,” Elizabeth Sholes, Director of Public Policy for California Church Impact.

Executive Bonuses

In addition to the $315 million in merger-related bonuses to top executives, Howard Phantsiel, PacifiCare CEO, will receive $130 million in additional “retirement payments” as part of a deal worked out prior to the merger announcement. Under the terms of the proposed merger top executives will receive:

* $215 million in accelerated stock options;
* $15 million in change-of-control payments;
* $85 million more in cash bonuses and stock if they stay with the merged company.

“At a time when 6.5 million Californians cannot afford their health care and millions more are underinsured, it is obscene to allow executives to feed at the trough of huge cash and stock payouts,” said Flanagan.

Read more information about the executive compensation package.

Reserves

Also at risk is PacifiCare of California’s $389 million in excess premium-funded reserves that could be removed by UnitedHealth unless regulators require the funds to remain in the state. According to PacifiCare’s June 30 quarterly filing to the Department, the company has more than 500% of state required reserves (TNE) levels.

FTCR called on DMHC to oppose the merger unless the companies agree that excess reserves will be kept in the state and: i) refunded to PacifiCare enrollees whose premiums have paid for the reserves; or, ii) held in trust to provide health care for the thousands of California families that cannot afford skyrocketing health care costs.
View PacifiCare’s quarterly filing with the DMHC.

Market Consolidation

In 2000, UnitedHealth abruptly dropped out of the HMO/PPO market in California to focus on larger national accounts. Questioning whether UnitedHealth plans to pull PacifiCare out of the California market to focus on Medicare prescription drug coverage, FTCR says regulators must investigate the effects the merger will have on increased market consolidation. Currently, five companies, including PacifiCare, control over 80% of California’s HMO market.

If PacifiCare were to be removed from the California market, or its membership significantly reduced, the result would be more consolidation and less competition. All California patients would likely face fewer choices, higher premiums and copays, and higher uninsured rates.

Merger Conditions

FTCR called on regulators to not approve the merger unless company executives provide legally binding commitments to:

* Allow state regulators to review all future rate increases and to deny increases deemed to be excessive, unfair, or discriminatory (similar to requirements already in place for auto and home insurers under Prop 103);

* Guarantee that patients will not face rate increases to pay for any costs associated with the merger including executive bonuses and financing costs;

* Guarantee that patients will not face new restrictions on which hospitals and doctors they can visit or limit access to necessary prescription drugs and medical treatments;

* Not cherry-pick the most profitable accounts, and leave patients stranded.

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The Foundation for Taxpayer and Consumer Rights is the state’s leading nonpartisan consumer advocacy organization.