Health Care Advocates Call On Insurance Commissioner to Adopt 5 Principles Before Approving PacifiCare/United Health Merger

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Santa Monica, CA — Prior to a public hearing at which price-gouged PacifiCare HMO patients will testify in opposition to $445 million in merger bonuses for HMO executives, consumer and Latino health groups called on Insurance Commissioner Garamendi to oppose the merger with United Health unless five conditions are met.

The $445 million in bonuses is enough money to provide health insurance to
148,000 Californians, or 37,000 families, for an entire year.

“Investors and consumers have the same prognosis. 9-figure paydays inevitably result in lower quality, higher-cost care, and erode a company’s financial health,” said Jerry Flanagan of the Foundation for Taxpayer and Consumer Rights. “Patients need new protections to ensure that premiums reflect the cost of medical care, not the greed of health care profiteers.”

The proposed PacifiCare merger comes on the heels of the buyout of California’s Blue Cross to form the nation’s largest insurer, WellPoint Inc. Other mergers of California health insurers are expected within the next 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.”

In addition to the Department of Insurance, the Department of Managed Health Care, whose director is a Governor Schwarzenegger appointee, has the authority to approve or deny all or part of the merger. PacifiCare has recently contributed $78,500 to Governor Schwarzenegger’s various fundraising committees.

Pat & Dave Parker of Orange, CA:

Pat and Dave know all too well what HMO mergers mean for patients. Before
joining PacifiCare’s “Secure Horizons” Medicare program for seniors, the Parkers were enrolled in Blue Cross of California when it merged with Anthem to form WellPoint. With little notice, Blue Cross increased their monthly premium by 38 percent — from $673 to $941. When the Parkers turned 65 and enrolled in Medicare, they thought they had escaped from skyrocketing health care premiums. But now the Parkers are worried that if United Health removes PacifiCare’s $389 million in excess reserves and awards hundreds of millions of dollars in executive bonuses, their MediCare plan rates will increase.

Pat Parker voted for McClintock, and Dave voted for Schwarzenegger in the 2003 recall election. That did not stop Pat from crashing a Governor Schwarzenegger fundraiser at a Los Angeles Lakers game in an attempt to talk to the Governor about her concerns with the hundreds of millions in bonuses awarded to top executives as a result of the Blue Cross merger. Schwarzenegger never contacted the Parkers, despite an aide’s promise that he would do so.

The five conditions that must before the PacifiCare/United Health merger is approved:

1. Protect patients and business owners from future rate increases to pay for excessive executive bonuses and other costs of the merger. Skyrocketing health care rates have contributed greatly to the increasing number of uninsured and underinsured Californians. In addition to $445 in merger related bonuses, PacifiCare’s $389 million in excess reserves can be removed from the state and repaid with premium increases unless regulators act. The burden of proof PacifiCare and UnitedHealth must be on PacifiCare and UnitedHealth to demonstrate that future rate increases are not the result of merger costs. To achieve this, all future rate increases must be reviewed by regulators before they are passed onto patients and business owners.

2. Require companies to invest in health care services or coverage expansions benefiting medically underserved areas. Those programs could take the form of funding for expansion of uninsured childrens’ and families’ health coverage, investment to improve health professional recruitment and retention in medically underserved areas, grants and loans to community clinics and health centers, or other such activities. The value of this investment should be at least equal to the value of the executive compensation payments expected to be paid in conjunction with the proposed merger.

3. Guarantee that patients will not face new restrictions on which hospitals and doctors they can visit or on their access to necessary prescription drugs and other medical treatments. Patients in the course of medical treatment must be allowed to retain access to their physician and hospital. When patients are shifted to a new physician, critical time is lost as the new care provider familiarizes themselves with the patient’s condition and treatment history. Further, patients should not be required to travel greater distances to access hospital services, particularly when the course of treatment is for chronic or life-threatening illness. Nor should patients lose access to prescription drugs and medical services they need to stay healthy.

4. Provide continuity of care. In 2000, UnitedHealth dropped out of the HMO/PPO market in California and other states. At that time, UnitedHealth shifted its focus to larger, national accounts. PacifiCare acquisition is targeted at another national audience: Medicare. Wall Street observers agree that UnitedHealth is likely to limit or terminate PacifiCare’s participation in the individual and small group market. The proposed merger should not be approved unless the companies commit to not “cherry pick” the most profitable accounts, leaving patients stranded.

5. Protect California from greater market consolidation. The last decade of health insurance mergers have taught us that when fewer health plans
dominate the health care market, quality goes down, premiums go up, and patients get short- changed. Dwindling competition, coupled with a lack of rate regulation, has removed all incentives for efficiency. Currently, PacifiCare of California is a significant player in the California individual and small group market. If PacifiCare’s HMO/PPO membership were removed or significantly reduced, just four companies would control over 80% of California’s HMO market and likely all patients and business owners would face increased costs and greater risk of being uninsured. The
PacifiCare/United merger should not be approved until the effects of such further market consolidation are fully understood.

FTCR is collecting signatures on an Internet petition calling on regulators to crack down on insurance company greed. The Internet campaign features a flash animation depicting former CEO Leonard Schaeffer as a “pig person from outer space (PPO)” for his $250 million payout following the recent Blue Cross merger. A PPO is type of health insurance plan that commonly charges patients large out-of-pocket costs. Click here to view the animation and sign the petition.

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Consumer Watchdog
Consumer Watchdog
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