Executive Bonuses & Reserves Enough to Provide Insurance for 278,000 Californians For Entire Year

Santa Monica, CA — A consumer group urged priced-gouged Sacramento-area health care consumers to attend a public hearing this Friday regarding the proposed merger of PacifiCare of California and United Health Group, which will likely result in higher health care costs for all Californians.

At risk is $834 million in executive bonuses and excess reserves which will result in higher health care costs. Already, in Sacramento County one in five adults between the ages of 18 and 64 cannot afford health insurance.

“At a time when 6.5 million Californians and thousands of Sacramento families cannot afford health insurance it is obscene to award HMO executives with multi-million dollar paydays,” said David Fink of the Foundation for Taxpayer and Consumer Rights (FTCR). “Regulators need to hear from patients and families about their struggles to afford health care. We urge consumers to send comments to regulators and attend this Friday’s hearing.”

FTCR will call on the DMHC to oppose the merger unless key commitments are made, including guarantees that patients will not face rate increases to pay for the cost of the merger. Consumers can click here to send comments online to regulators about the merger.

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.

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

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.

Public Hearing

The Department of Managed Health Care (DMHC) will hold the public hearing at 10:00 am, in Sacramento, this Friday September 16 at the Secretary of State Building (Auditorium) located at the corner of 11th and O Streets. For more information, contact FTCR at: http://www.ConsumerWatchdog.org or call toll-free at (877) 791-2225 ext. 320

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.

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.

FTCR will call 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.

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.

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