Concerns Voiced on Bid to Buy PacifiCare

Consumers told state regulators Thursday that they feared UnitedHealth Group Inc.’s bid to buy PacifiCare Health Systems Inc. would lead to higher premiums, harmful changes in their health plan benefits and a reduction in competition among HMOs.

At a hearing in Santa Ana, critics of the $8.1-billion deal also blasted executives of Cypress-based PacifiCare, claiming that their bonuses, accelerated stock options and other perks from the sale are worth more than $300 million and would drain funds for medical care.

“I’m really afraid that if this merger goes through, my premiums are not going to go down,” said Deni Mosser, a self-employed Web designer in Los Angeles, who testified that her PacifiCare health plan shot up $60 a month to $262 in March. “When executives get hundreds of millions of dollars in bonuses, people like me pay for it.”

Jerry Flanagan, a spokesman for the Foundation for Taxpayer and Consumer Rights in Santa Monica, brought two small pigs to the hearing to protest the executives’ bonus packages, which he said would match the cost of a year’s worth of health coverage for 150,000 uninsured people.

“It’s obscene to allow top executives to feed at the trough when so many Californians and so many Americans are uninsured,” Flanagan said outside the hearing.

However, executives of Minnesota-based UnitedHealth, the nation’s second-largest health insurer with 22 million members, insisted that the sale would lead to greater efficiencies and give PacifiCare members access to its nationwide network of physicians and hospitals.

PacifiCare executives also defended their higher prices, noting that 98% of its $563 million in premium hikes last year covered increased hospital, doctor and pharmacy bills.

“We’re really just reflecting the underlying costs of the healthcare system,” said James Frey, president of PacifiCare of California.

The executives also described how PacifiCare would be able to use UnitedHealth’s more sophisticated technology, including a “swipe card” system that allows physicians to determine a member’s eligibility by running their insurance card through a MasterCard machine.

“PacifiCare will continue to provide the same excellent service it always has with the support of a larger, stronger corporation behind it,” said Reed Tuckson, UnitedHealth’s chief medical officer.

Their comments came at the first of two hearings planned by the California Department of Managed Health Care.

The proposed deal would combine UnitedHealth with PacifiCare, which has 12.6 million members in various health, dental and other specialty plans. Although PacifiCare is only the fifth-largest health insurer in California, it provides coverage to about 700,000 seniors on Medicare and that is seen as its key selling point on Wall Street.

“This is the second proposed merger of a major player in the California market in the past 18 months,” Cindy Ehnes, director of the healthcare agency, told the audience. “Questions about ... consumers’ ability to gain access to affordable healthcare products must be answered.”

Ehnes was referring to last year’s deal that led to the formation of WellPoint Inc., the nation’s largest health plan. The agency approved the WellPoint deal despite protests over executive bonuses and concern that the decline in competition would result in premium hikes.

“There’s an excessive amount of money being pulled from [consumers], first in the case of [WellPoint’s] Blue Cross and now in this case,” said Dave Parker, an Orange resident who gets Medicare coverage through a PacifiCare plan.

Others at the hearing, including an advocate for medical groups, the leader of a small business group and some consumers, urged the state to approve the PacifiCare deal, saying UnitedHealth’s size would make PacifiCare an alternative to WellPoint’s Blue Cross of California.

“This merger will bring more competition to the marketplace, not less,” said Mark Conway, a broker who helps employers shop for health plans.

A second hearing is set for Sept. 16 in Sacramento.

UnitedHealth’s shares rose 1 cent to $50.64, while PacifiCare climbed 26 cents to $74.98.