Patients Protest Merger Bonuses and Reserves Large Enough to Provide Health Insurance To 278,000 Californians for An Entire Year

Santa Ana, CA — Patients, consumer advocates and business owners brought two live pigs to a public hearing today calling on regulators to “cut the pork” out of a proposed merger of health care giants PacifiCare of California and UnitedHealth Group, Inc. Price-gouged PacifiCare of California patients testified at the hearing today in opposition to $445 million in executive bonuses and $389 million in excess reserves that will result in higher insurance rates.

The Foundation for Taxpayer and Consumer Rights (FTCR) called on the Department of Managed Health Care (DMHC) to oppose the proposed merger unless key commitments are made, including guarantees that patients will not face rate increases to pay for the cost of the merger.

“When piggish HMO executives cash out with 9-figure paychecks, patients and small businesses 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 financiers.”

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.

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.

Pat & Dave Parker of Orange, CA

Before joining PacifiCare’s supplemental insurance program for Medicare seniors, Pat and Dave were enrolled in Blue Cross of California, which merged with WellPoint last year to form the nation’s largest insurer. Since Dave was laid off by a small electronics firm in October 2001, the two struggled to afford their insurance. 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.

Pat and Dave Parker, now enrolled in PacifiCare’s “Secure Horizons” supplemental insurance program for Medicare seniors, attended a press conference prior to the hearing and provided testimony to the DMHC today. The Parkers are worried that if UnitedHealth removes PacifiCare’s $389 million reserves and awards hundreds of millions of dollars in executive bonuses, their MediCare plan rates will increase.

Pat voted for McClintock, and Dave voted for Schwarzenegger in the 2003 recall election. But 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. Though Schwarzenegger never contacted the Parkers, despite an aide’s promise to do so, Pat and Dave attended the DMHC’s sole public hearing to oppose the Blue Cross merger last year.

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:

* Phantsiel will receive $59 million in stock options that will “vest” immediately;

* 39 PacifiCare executives will share $156 million in stock options;

* 18 PacifiCare executives will share $14.5 million in “change of control” bonuses if they leave the company within in two years of the merger;

* 21 PacifiCare executives are in line to receive $84.5 million in signing bonuses and UnitedHealth stock.

“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

Click here for 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.

“These reserves represent payments made to PacifiCare in good faith by patients and employers to secure health care coverage,” said Flanagan. “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.”

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.

Merger Conditions

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

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

* 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);

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

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

Internet Campaign

FTCR is now collecting signatures on an Internet petition calling on regulators 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.

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 a recent merger involving Blue Cross of California’s parent company, WellPoint. A PPO is type of health insurance plan that commonly charges patients large out-of-pocket costs.

View the animation and petition.

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