The proposed merger of UnitedHealth Group, the nation's second-largest health insurer, and PacifiCare Health Systems may have won praise...
LOS ANGELES — The proposed merger of UnitedHealth Group, the nation’s second-largest health insurer, and PacifiCare Health Systems 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.
Most Read Stories
- Woman, 71, lost in Olympics with dog, built shelter, ate ants
- 3 teens killed in Lynnwood crash from Mill Creek high school
- Foreign buyers drop off as Seattle housing market hits hottest tempo since 2006 bubble
- What drivers can and cannot do under Washington state's new distracted-driving law
- Are Seattle housing prices headed for a crash? | Jon Talton
Critics aren’t buying it. They argued yesterday that previous big mergers didn’t result in 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 medical association 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.
Cypress, Calif.-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. And the market is about to get a lot bigger. The new Medicare drug benefit that goes into effect next year is expected to cover 11 million low-income older and disabled people.
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.
The deal follows a consolidation trend among health insurers. UnitedHealth alone has gobbled up some 10 smaller health plans in recent years.
If it goes through, the latest acquisition will “increase pressure on the other managed care companies … to do further acquisitions to keep up with the expanding stakes for higher scale in the industry,” Goldman Sachs Group said in an analysis.
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.
Fitch Ratings said the acquisition would “significantly improve PacifiCare’s financial position and operating profile.”
While increasing its share of the Medicare market with the acquisition, UnitedHealth is also gambling that government-funded health care will remain strong.
“United is making a bet that we’re not going to see dramatic cuts, say in 2008 when we get a new president and potentially a new Congress,” said analyst Carl McDonald of CIBC World Markets in New York.
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. Still, McDonald and other analysts predicted UnitedHealth would not face serious roadblocks.
The merger would place UnitedHealth behind only WellPoint’s 28.5 million customers in terms of nationwide health-plan membership.
Shares of UnitedHealth fell 1 cent to close at $53.49 yesterday on the New York Stock Exchange, while shares of PacifiCare rose 27 cents to close at $77.36.