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Health Insurer Merger Fuels Skeptics -- Groups Say $8.1 Billion United Health- PacifiCare Proposal Dubious for Consumers

Posted on: Tuesday, 12 July 2005, 12:01 CDT

LOS ANGELES - The proposed merger of UnitedHealth Group Inc., the nation's second-largest health insurer, and PacifiCare Health Systems Inc. may have won praise from Wall Street, but consumer groups worry it will mean higher costs and less coverage for millions of Americans.

If approved by regulators, the $8.1 billion stock and cash deal would create one of the nation's largest private health plan providers, with about 26 million subscribers.

The CEOs of both firms said the deal would benefit customers, especially PacifiCare's growing base of elderly Medicare recipients, by giving them access to UnitedHealth's nationwide network of doctors and hospitals.

The merger also would cut operating costs by an estimated $100 million in the first year alone, said Dr. William McGuire, chief executive of UnitedHealth.

Critics aren't buying it. They argued Thursday that previous big mergers didn't result in any savings for subscribers.

"The merger troubles us. It places Wall Street's demand for profits ahead of Main Street's interest in good health care," said Dr. Jack Lewin, head of the California Medical Association, which represents 35,000 doctors.

"There's no discernible benefit to the consumer for this," he said. "The benefit is to the companies and their shareholders."

The CMA is embroiled in a fraud lawsuit against a number of big managed care companies, including UnitedHealth and PacifiCare, alleging they refused to pay for some medically necessary treatment.

Others worried that the merger would further reduce competition.

"Because the health industry is dominated by only a few big players, there's less competitive force to try to bring down the price of health care," said Anthony Wright, executive director of Sacramento-based Health Access California, a consumer advocacy coalition.

Cypress-based PacifiCare has jumped out as a leader in the Medicare market. Its Secure Horizons plan, which includes discount cards for drugs and other products for seniors, has 700,000 members. It's already the nation's second-largest private administrator of Medicare health plans after Kaiser.

UnitedHealth, based in Minnetonka, Minn., has built a reputation as a cost-conscious, efficiency-minded insurer. Over the past five years, its shares have climbed from a split-adjusted $10 a share to more than $50.

Others on Wall Street agreed that the deal is good for both businesses, especially PacifiCare. UnitedHealth said it would pay off PacifiCare's $1.1 billion in debt as part of the agreement.

The agreement still has regulatory hurdles to cross. The federal government and insurance regulators in every state where the companies have a stake must sign off.

Source: Commercial Appeal, The

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