Consumer Groups Calls on Regulators to Oppose Merger

Santa Monica, CA — The consumer group that led the fight over the WellPoint/Anthem HMO merger called on state officials today to oppose the planned buyout of PacifiCare unless key conditions are met, including limiting executive payouts and protecting PacifiCare’s $374 million reserve.

According to documents filed yesterday, top PacifiCare executives will receive $230 million in cash and stock if state regulators approve the buyout of So. California-based PacifiCare. If approved, the merger would create the nation’s largest health insurance company.

When piggish HMO executives cash out with 9-figure paychecks, patients and small business foot the bill. The last decade of HMO mergers has taught us that when fewer HMOs dominate the health care market, quality goes down, premiums go up, and patients get short changed,” said Jerry Flanagan of the Foundation for Taxpayer and Consumer Rights (FTCR). “Patients need new protections to ensure that premiums reflect the cost of medical care, not the greed of health care profiteers and Wall Street financers.”

FTCR recently launched an Internet campaign giving consumers a chance to fight back against outrageous CEO salaries and to call on regulators to crack down on profiteering. The Internet campaign features a petition and flash animation depicting former CEO Leonard Schaeffer as a “pig person from outer space (PPO)” for his $250 million payout following a recent buyout of Blue Cross of California. A PPO is type of health insurance plan that commonly charges patients large out-of-pocket costs. To view the animation and the petition go to: http://www.ConsumerWatchdog.org/healthcare/PigPeople

According to documents filed with the state in March of this year, PacifiCare has at least $374 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 124,000 Californians for an entire year (based on annual cost of $3,000 per person). The $230 million in bonuses could provide health care for another 76,000 Californians for an entire year.

“PacifiCare’s reserves represent payments made in good faith by patients and employers to secure health care coverage. With more than 6.5 million uninsured patients and millions more underinsured, California cannot afford to allow UnitedHealth to loot and leave,” said Jerry Flanagan of FTCR. “Every dollar siphoned away from the company means that patients and business owners must pay more for less health care or face cutbacks in coverage benefits, quality or access to care.”

Questioning whether UnitedHealth plans to pull PacifiCare out of the California market to focus on national contracts and Medicare supplement plans, FTCR said regulators must investigate whether the merger will result in increased market consolidation and less competition. Currently, 5 companies, including PacifiCare, control over 80% of California’s HMO market.

FTCR said the excess reserves must 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 PacifiCare and other California consumers that have been priced out of the health care market.

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 for auto and home insurers under Prop 103);

– Limit executive bonuses;

– Guarantee that patients will not face new restrictions on which hospitals and doctors they can visit or limited access to necessary prescription drugs and other medical treatments.

FTCR is now collecting signatures on an Internet petition urging Governor Schwarzenegger, Insurance Commissioner Garamendi, and the State Legislature to crack down on insurance company greed by regulating health insurance premiums in the same manner as auto and home insurance premiums under Prop 103. Prop 103, which requires insurers to justify rate increases and bans excessive and unfair rates, has saved California drivers $23 billion since 1988.

Both the California Department of Insurance and the Department of Managed Health Care have the authority to deny the merger request.

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The Foundation for Taxpayer and Consumer Rights (FTCR) is California’s leading nonpartisan consumer advocacy organization.