Angelides, CMA Voice Opposition to PacifiCare, UnitedHealth Merger
State Treasurer Phil Angelides (D) on Thursday asked Gov. Arnold Schwarzenegger (R), CalPERS and the California State Teachers' Retirement System to oppose UnitedHealth Group's proposed $8.1 billion acquisition of PacifiCare Health Systems unless company executives agree to forego some merger-related bonuses, the Sacramento Bee reports.
The Department of Managed Health Care on Friday is holding a hearing to assess the impact of the proposed deal, which would be the second major merger of health insurers in California in two years (Chan, Sacramento Bee, 9/16).
The deal would provide UnitedHealth with access to the 716,000 PacifiCare members enrolled in Medicare plans and the 2.5 million members enrolled in commercial plans in California, Washington state, Oregon and Nevada. The acquisition would increase the membership of UnitedHealth, the second-largest health insurer in the nation, to 25 million (California Healthline, 8/2).
Under the proposal, 39 PacifiCare executives would receive about $315 million, or roughly $8 million each, the San Jose Mercury News reports. The deal, scheduled to be completed by Feb. 1, 2006, requires approval by the firms' shareholders and in California by the Attorney General, DMHC and the Department of Insurance.
"This is the kind of self-serving manipulation that undermines the faith and confidence of ordinary working Californians. There is simply no justification for these excessive payouts," Angelides stated in a letter to Schwarzenegger, CalPERS and the teachers' retirement system (Johnson, San Jose Mercury News, 9/16). Angelides said, "The merger should not be approved unless the executive compensation package is stripped out" (Sacramento Bee, 9/16).
PacifiCare spokesperson Tyler Mason said that $215 million of the compensation was for stock options previously granted and reflects the rise in PacifiCare's stock recently. Another $85 million was intended to help retain some PacifiCare executives at the merged company. Mason said that the payouts are "absolutely not excessive" and that Angelides' objections are political "grandstanding."
Although Angelides has no regulatory authority over the proposed merger, he is a trustee with CalPERS and the teachers' retirement system, which own a combined $480 million in PacifiCare and UnitedHealth stock.
Insurance Commissioner John Garamendi (D) said he planned to consider whether the payout amounts were unusual. "We are in the early stages of analysis," he said, adding that if the payouts prove to be excessive, "I won't approve it." Garamendi said he would work to ensure that consumer premiums would not rise if the merger were approved (San Jose Mercury News, 9/16).
In addition, the California Medical Association on Thursday issued a statement criticizing the deal and asking for a "careful examination of the fairness" of the executive payouts, the Los Angeles Times reports.
Jack Lewin, CEO of the association, said, "Once again, we seen another mega-merger before us where the emphasis appear to be on profits on Wall Street instead of health care on Main Street" (Vrana, Los Angeles Times, 9/16).