Cautionary Tale for Future Mergers
Los Angeles, CA — The up to $1.33 billion in fines for wrongful denials of medical care announced today by California regulators against PacifiCare of California, which merged with UnitedHealth in 2005 to create the nation’s second-largest health insurer, is emblematic of a highly consolidated health insurance market that is inadequately regulated, according to the Foundation for Taxpayer and Consumer Rights (FTCR).
Regulators noted a spike in patient and physician complaints against the company following the 2005 merger.
“Two years ago we fought to oppose this merger. We were concerned that PacifiCare would attempt to recoup $345 million in merger-related bonuses to top executives by charging higher premiums and refusing to pay for necessary medical care. That is exactly what regulators have uncovered two years after the merger,” Jerry Flanagan of FTCR. “Cracking down on this illegal behavior is the first step in protecting consumers. The PacifiCare/United Health merger fiasco is a cautionary tale to all regulators reviewing future insurance mergers. With fewer competitors and a lack of government oversight, insurance companies have a stranglehold on health care, giving them more power to selectively insure only healthy customers and to refuse to pay for care when patients get sick.”
California regulators fined PacifiCare for:
* Wrongful denials of covered claims;
* Incorrect payment of claims;
* Lost documents including certificates of creditable coverage and medical records;
* Failure to timely acknowledge receipt of claims;
* Multiple requests for documentation that was previously provided;
* Failure to address all issues and respond in a timely fashion to member appeals and provider disputes;
* Failure to manage provider network contracts and resolve provider disputes.
Since 1994, there have been over 400 mergers of HMOs and health insurers  in the United States. In California, just five companies now account for 80 percent of California’s health care service plan market.
PacifiCare Executive Bonuses
In addition to the $345 million in merger-related bonuses to top executives, Howard Phantsiel, former PacifiCare CEO, received $130 million in additional “retirement payments” as part of a deal worked out prior to the merger announcement. Under the terms of the merger, top executives received:
* $245 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.
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FTCR is California’s leading public interest watchdog. For more information, visit us on the web at www.ConsumerWatchdog.org.
 Competition in Health Insurance- A Comprehensive Study of U.S. Markets, 2005 Update, American Medical Association‘s Private Sector Advocacy Group.
 Blue Cross, Kaiser, Blue Shield, Health Net, PacifiCare. Source: Department of Managed Heath Care, annual reports.