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Read Making a Killing

home / healthcare / in the media

Sacramento Bee
Jul 07, 2005

by Lisa Rapaport, Bee Staff Writer

Merger of health insurers planned;

UnitedHealth Group is set to purchase PacifiCare in an $8.1 billion deal.
PacifiCare Health Systems Inc. and UnitedHealth Group Inc. announced plans Wednesday for a merger that could create the nation's second-largest health insurer.

UnitedHealth has offered to buy PacifiCare for $8.1 billion in cash and stock.

The two companies combined expect to insure about 25 million members nationwide, second only to WellPoint, which has about 28 million members.

PacifiCare, based in Cypress, Orange County, has more than 100,000 members in the Sacramento region. Over the years, the insurer has ranked among the top five insurers in the local market.

After the deal goes through, nothing will immediately change for PacifiCare's patients in the region, said PacifiCare spokesman Tyler Mason.

"We believe local accountability is essential in the relationship between consumers and their health plan, and that will be maintained for our members in the Sacramento region," Mason said.

Whether the deal goes through at all may depend on California Insurance Commissioner John Garamendi, who blocked a planned $16.4 billion merger between insurers WellPoint and Anthem for months to press for contributions to state health programs. He approved the merger after the health plans pledged to spend $265 million on medical programs for poor Californians.

In a statement released Wednesday, Garamendi said he expected to receive an application seeking his approval for the PacifiCare deal.

"My department has established a very clear position on health care industry consolidations and the effect that they may have on consumers. My goal, as always, is to provide the maximum protection for California's health care consumers," Garamendi said.

As soon as the merger plans were announced, one of the consumer groups that had opposed the WellPoint merger leveled similar complaints against the PacifiCare deal.

Creating the nation's second-largest health insurer "will result in less choice for patients, lower payments for doctors and hospitals, and more waste in the health care system," said Jerry Flanagan of the Foundation for Consumer and Taxpayer Rights.

Both companies said the deal would benefit consumers.

"We believe combining UnitedHealth Group's national health service capabilities with PacifiCare's brand prominence and deep relationships in the western United States will improve upon our nation's health care system," said Howard Phanstiel, chairman and chief executive officer of PacifiCare.

Shares in PacifiCare (ticker symbol PHS) closed at $77.09 Wednesday on the New York Stock Exchange, up $4.41, or 6 percent. The stock's 52-week high is $83.45.

Shares in UnitedHealth Group (UNH on the NYSE) rose 27 cents, or 0.5 percent, to close at $53.50. The 52-week high is $54.50.

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