Pacificare to be acquired by UnitedHealth (7/7/2005)

Source: LA Times

Insurance giant UnitedHealth Group said Wednesday that it intends to purchase PacifiCare Health Systems in an $8.1-billion deal that would give it a big stake in the California health insurance marketplace and would accelerate consolidation of the health insurance industry.

UnitedHealth, the nation's second-largest health insurer with 22 million members, would gain ground on industry leader WellPoint Inc. and tap into PacifiCare's strong Senior Health Insurance business, positioning the company to capitalize on a prescription-drug benefit scheduled to start Jan. 1, 2006

The deal would be the second-largest health insurance acquisition, after last year's $21-billion purchase of Thousand Oaks-based WellPoint Health Networks Inc. by Anthem Inc., which took the name WellPoint Inc.

Executives at both companies promised the acquisition would improve service to PacifiCare members by giving them access to UnitedHealth's national network. They also said the companies would save money by combining technology and eliminating redundancy

But managed-care experts and consumer groups worried the deal could mean higher costs and fewer choices for consumers.

"These mergers are driven by the health plans' desires to increase market share and profitability, and they are responding to Wall Street needs rather than Main Street and the needs of patients," said Anmol S. Mahal, a gastroenterologist in Fremont and president-elect of the California Medical Assn., which represents physicians.

"I don't see this as beneficial to California consumers or employers," said Alain Enthoven, a Stanford University business professor and expert on managed care. "I regard this as a loss and doubt there are any economies of scale to be achieved here."

Wall Street analysts were far more enthusiastic.

"This is a great fit," said Sheryl Skolnick, analyst with Fulcrum Global Partners in New York. "Clearly United has made a commitment to the senior [market] and it gives them added products and a bigger presence in that area."

Through its Secure Horizons brand name, PacifiCare provides coverage to more than 700,000 seniors, making it the nation's largest for-profit provider of such plans. It also offers Medicare supplement plans and heart-disease management to other Medicare recipients.

UnitedHealth executives said they were also attracted to the company's specialty programs, such as those for prescription drugs, behavioral health, dental insurance and vision insurance.

The deal would give UnitedHealth a larger presence in California, where it serves 900,000 clients through a license agreement with CareTrust Networks, a Blue Shield of California subsidiary.

The acquisition also gives UnitedHealth new operations in Nevada, Oregon and Washington. The two insurers overlap in Arizona and Colorado, and cost savings are expected there, executives said.

UnitedHealth has grown mostly through acquisitions of smaller health insurers, making nearly 10 purchases in the last few years, such as its $4.9-billion deal for Trumbull, Conn.-based Oxford Health Inc. in 2004. In that case, UnitedHealth promised state regulators to keep most of the employees for the next two years, increase charitable giving and retain management.

If approved by PacifiCare shareholders and regulators, the acquisition could close late this year.

The deal is expected to be reviewed by the Antitrust Division of the U.S. Justice Department. Officials at the state Department of Managed Health Care and the state Department of Insurance also said they would be scrutinizing the deal.