UnitedHealth Group to Take Over PacifiCare Health in $8.1 Billion Deal
Posted on: Thursday, 7 July 2005, 18:00 CDT
Jul. 7--In one of the largest health-care takeovers in recent years, UnitedHealth Group will acquire PacifiCare Health Systemsfor $8.1 billion in cash and stock, the companies announced Wednesday.
The acquisition will give United a competitive edge in the Medicare market, set to explode Jan. 1 when the federal health plan for 40 million senior and disabled Americans begins paying for prescription drugs.
Drug coverage was a key provision of the Medicare Modernization Act of 2003, which also included $14 billion in incentives for private health plans signing on to provide coverage.
PacifiCare has been one of the strongest players in Arizona's managed-care market, while United's market share has fluctuated over the last five years.
In terms of HMO revenue, PacifiCare ranked first in Arizona last year, with nearly $1.1 billion, according to the state Department of Insurance, while United reported 2004 revenues of $64.5 million.
From a membership standpoint, PacifiCare was the second-largest HMO in the state last year with more than 230,000 total members, including nearly 104,000 Medicare enrollees.
United -- which dropped 12,000 Medicare enrollees in Arizona at the end of 2000 and 7,500 individual policyholders in 2002 -- is now one of the smallest players in the state's managed care market, with less than 26,000 total members, including about 16,000 in Medicare plans.
United's purchase of PacifiCare will mean fewer choices for consumers -- at least in the short term, local experts said.
"It's always a concern for me, for our clients, when the market shrinks," said Tucson health insurance broker Hank Peck. "From the point of view of the group market, I want as many plans as I can have." Jim Hertel, publisher of the Arizona Managed Care Newsletter, agreed with Peck.
"From the consumers' standpoint it certainly means fewer choices in the near future and in the longer term it may well mean higher premiums because of less competition," Hertel said.
PacifiCare will become a subsidiary of Minnetonka, Minn.-based UnitedHealth, which covers 23 million health-care plan members nationwide and an additional 30.8 million people through medical insurance or insurance programs it manages for other firms.
PacifiCare, based in Cypress, Calif., is one of the nation's largest health groups with nearly 3.2 million members of health plans and about 11.3 million members of specialty plans covering such things as dental care and behavioral health.
PacifiCare has been priming itself for a takeover for the last two or three years, hiring executives with experience in company acquisitions and sales, Hertel said.
United has made several acquisitions over the last year and a half, and it has aligned itself with AARP and Walgreens to provide Medicare Part D prescription drug coverage starting in January.
Acquiring PacifiCare also will greatly enhance United's presence in the western United States, Hertel noted.
"Several years ago United withdrew from the commercial market in California," he said. "The acquisition will enhance its ability to re-enter the commercial market in California with significant membership." PacifiCare has had "some great people on the ground doing the service work" for its Arizona accounts, Peck said.
"You don't know if they're going to stay or not," he said. "You sure would like to see them stick around."
News of the deal sent PacifiCare's stock up 6.1 percent, or $4.41, to close at $77.09 on the New York Stock Exchange. UnitedHealth, the nation's second-largest health insurer, ended the day 27 cents higher, at $53.50 per share.
The Associated Press contributed to this story.
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Source: The Arizona Daily Star
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