The San Diego Union-Tribune

When Anthem acquired WellPoint Health Network last year, the deal created the largest private health insurance provider in the nation with about 28 million members.

Now UnitedHealth Group wants to take over Pacificare Health Systems to create an entity nearly as large, with roughly 26 million members.

Consumer advocates are worried about the trend.   

“This is the second domino of what is expected to be more mergers, which will lead to higher prices and, we fear, less consumer choice,” said Anthony Wright, executive director for health consumer rights group Access California.

Insurance companies and Wall Street look favorably on the consolidations, which give the companies a chance to expand their markets and product lines.

But consumer groups say bigger isn’t better, and argue that mergers reduce competitive pricing and consumer choice.

The problem is pronounced in California, where only a few large companies already lead the market and further consolidations would have a major impact.

Pacificare and WellPoint are based in California, and consumer groups said remaining insurers may feel pressure to merge to compete with the two insurance behemoths.

“We are looking at a system where a very small number of companies control the health insurance market and set their terms and conditions without fear,” said Jamie Court, president of the Foundation for Taxpayer and Consumer Rights in Santa Monica. “I think the trend is only going to continue.”

Goldman Sachs analyst Matthew Borsch suggested in a report last week that Aetna might acquire HealthNet. Unlike other mergers, which brought together companies with disparate markets, Aetna and HealthNet have a significant presence in California.

Aetna and HealthNet said they would not comment on market speculation.

State and federal regulators must approve all mergers before they can move forward.

The state said it has not received UnitedHealth Group’s proposal and could not comment. The UnitedHealth-Pacifcare merger is unlikely to face antitrust scrutiny because the companies primarily operated in different markets.

“The merger is of two leading health care companies that specialize in different parts of business,” Pacificare spokeswoman Cheryl Randolph said.

The UnitedHealth and Pacificare presidents have said that the companies don’t need the merger to survive but can use it to benefit.

Pacificare is a leader in the West, with about one-third of its business in California, and is the second-largest private provider of Medicare business.

Minnesota-based UnitedHealth, the larger company, is a large national provider but held little West Coast business.

Pacificare would keep its name and operate as an independent subsidiary if the merger is approved. But the deal will provide Pacificare access to UnitedHealth‘s larger network and other services. And UnitedHealth will get a Western presence and develop its Medicare business.

Insurers nationwide are currently bidding on new regional contracts created under the Medicare Modernization Act. Larger insurers may have an edge because the government divvied up the country into 26 regions, and the contracts are only available to insurers who can cover the entire geographic region.

California consumers are unlikely to see any changes following the merger, Randolph said.

But California’s approval remains a wild card in the deal because of California Insurance Commissioner John Garamendi‘s vocal opposition to health insurance mergers.

Garamendi fought the WellPoint merger, delaying it for months because he said he was concerned that expenses such as executive pay and transition costs would be passed on to the consumer. The deal was eventually approved, but the state is currently investigating a possible link between rate increases being used to cover the $ 4 billion acquisition costs.

Blue Cross has said the rates are fair and unrelated.

Insurers involved in the deals said mergers benefit consumers because they are able to negotiate lower prices and access more providers.

Merger opponents, such as consumer groups and physician groups, said such deals will limit payments to physicians and limit choices for consumers.

“It’s not just idle concern by consumer advocates,” Wright said. “There are only seven major players in California if you are Aetna or Cigna or HealthNet you’re probably looking at the other guys wondering who you should merge with.”