August 16, 2005

Cindy Ehnes
Director
Department of Managed Health Care (DMHC)

RE: PacifiCare/UnitedHealth Merger

Dear Ms. Ehnes,

I am writing to urge you to opposed the propose merger of PacifiCare of California with the Minnesota-based UnitedHealth.

Reserves

At risk is PacifiCare of California’s $374 million in excess premium-funded reserves. According to PacifiCare’s March 31 quarterly filing to the Department, the company has more than 500% of state required tangible net equity (TNE) levels. This figure does not include cash held by PacifiCare Life and Health Insurance regulated by the Department of Insurance.

Excess reserves must be kept in the state and, i) refunded to PacifiCare enrollees whose premiums have paid for the reserves; or, ii) held in trust to provide health care for the thousands of California families that cannot afford skyrocketing health care costs.

These reserves represent payments made to PacifiCare in good faith by patients and employers to secure health care coverage. With more than 6.5 million uninsured patients and millions more underinsured, California cannot afford to allow UnitedHealth to loot and leave. Every dollar siphoned away from the company means that patients and business owners must pay more for less health care or face cutbacks in coverage benefits, quality or access to care.

Market Consolidation

UnitedHealth has demonstrated that the company has no interested in insuring the small employers from whom most employed Californians receive their health coverage.

UnitedHealth dropped out of the HMO/PPO market in California and other states several years ago. At that time, UnitedHealth shifted its focus to larger, national accounts which have been very profitable for the company. The PacifiCare acquisition is targeted at another national audience: Medicare.

Will UnitedHealth terminate PacifiCare’s participation in the small group market?

Currently, PacifiCare of California is a significant player in the California small group market. In fact, PacifiCare is one of five health care service plans that control 80% of the HMO market regulated by the Department of Managed Health Care.

If PacifiCare were to be removed from the small group market, or its membership significantly reduced, this would result in more consolidation and less competition; therefore, likely fewer choices for patients, higher premiums and copays, higher rates of coverage denials and higher uninsured rates in California.

Key Patient Safety Requirements

You should not approve the merger unless company executives provide legally binding commitments to:

* allow state regulators to review all future rate increases and to deny increases deemed to be excessive, unfair, or discriminatory (similar to requirements for auto and home insurers under Prop 103);
* limit executive bonuses;
* guarantee that patients will not face new restrictions regarding which hospitals and doctors they can visit or limited access to necessary prescription drugs and other medical treatments; and,
* guarantee that UnitedHealth will pull PacifiCare out of the small group market, cherry pick the most profitable accounts, and leave patients stranded.

Thank you for scheduling public hearings to consider the public’s concerns regarding the proposed merger. We ask that you schedule these hearings in the evening or on weekends in order to increase the likelihood the members of the public will be able to attend.

Sincerely,

Jerry Flanagan
The Foundation for Taxpayer and Consumer Rights (FTCR)