PacifiCare Purchases Group Health Unit of Pacific Life Insurance

Cypress-based PacifiCare Health Systems on Monday announced that it will purchase the group health business of Newport Beach-based Pacific Life Insurance for an undisclosed amount, the Orange County Register reports. The cash deal would transfer as many as 140,000 new PPO Pacific Life members in 30 states to PacifiCare, resulting in a transfer of more than $300 million in premium-based revenue annually.

According to the Register, the transferred members are "mostly employees of small companies," a "line of businesses PacifiCare is eager to expand." The company in September paid American Medical Security Group $532 million in a deal to add 314,000 PPO members to PacifiCare's membership.

The two purchases are part of a strategy by PacifiCare to reduce its reliance on Medicare business, the Register reports. The Pacific Life deal could result in the company reducing its reliance on Medicare business from 39% of gross profit to 32%.

In addition, the two purchases combined would increase PacifiCare's nongovernmental membership rolls -- currently at about 2.3 million -- by 20%. Although PacifiCare this year expanded its Medicare business in response to the new Medicare law, the company said it will ensure its nongovernmental business growth is on pace with its Medicare-related business.

Bob Haskell, a spokesperson for Pacific Life, said the deal will allow the company to focus on its core business of life insurance and annuities. "We just don't have the scale to compete in this marketplace. PacifiCare does, and it's a perfect home for our block of business -- and our employees," Haskell said.

Some of the roughly 685 Pacific Life employees who managed the transferred accounts will probably be laid off, according to Bradford Bowlus, head of PacifiCare's health plan division. However, Bowlus added, the company also could add jobs as it increases its commercial small-group insurance business.

PacifiCare CEO Howard Phanstiel said, "The timing of this transaction, following so closely on the heels of the (American Medical) acquisition, suggests that we have contemplated their joint integration for some time." Phanstiel added that the company does not plan to undertake any more major deals in the near future. "A number of shareholders have suggested we need to demonstrate that this management team can successfully integrate acquisitions," he said, adding, "So that's what we're going to focus on as the top priority. ... For now I think our plate is a little full."

The two PacifiCare deals are expected to be completed in early 2005 (Wolfson, Orange County Register, 11/30).