A year ago, Cypress-based PacifiCare Health Systems Inc. became part of Minnesota’s UnitedHealth Group Inc. in the biggest buyout yet for an Orange County company.
Since the $9.3 billion deal, health insurer PacifiCare has expanded the number of doctors and hospitals it works with, switched to United-Health’s computer system and plans to offer a preferred provider plan from its parent company.
The integration has “gone very well,” said David Hansen, UnitedHealth’s chief executive for Cal-ifornia.
About the only bump: UnitedHealth’s own troubles.
The company has been at the forefront of the stock option grants scandal, which led to the Dec. 1 departure of former chief executive William McGuire.
McGuire was granted stock options that brought him some $1.6 billion in unrecognized gains. The executive led the PacifiCare acquisition and is credited with transforming UnitedHealth into a national player.
The episode has driven down UnitedHealth’s shares by nearly 25% this year and dinged the company’s image. If the PacifiCare buy were to close today, it’d be worth about $7.8 billion, or 20% lower.
That’s translated into a real loss for employees and investors who traded their PacifiCare shares for UnitedHealth stock.
Beyond that, the scandal hasn’t been more than a distraction for Pacifi-Care’s business.
“Our overall strategic direction and performance goals for the company remain the same, and we continue to grow our business in California as well as the rest of the country,” Hansen said.
Karen Nixon, president of Newport Beach insurance brokerage Nixon Benefits, said she’s told clients about UnitedHealth’s troubles.
“It didn’t make an impact on their decision to stay or leave at this time,” she said.
Those employers that did leave PacifiCare as their health plan provider for 2007 did so because of other reasons, Nixon said.
“The bottom line is cost is still king,” she said.
PacifiCare customers are seeing premium increases in the high single digits to low teens for 2007.
Employers seeking healthcare coverage “don’t make the connection between what’s going on in Minneapolis versus service buying in California,” said Paul Haderlein, vice president in the Irvine office of Aon Consulting, a Chicago-based insurance brokerage.
UnitedHealth’s stock options scandal could have local fallout “if it trickled down into the underwriting” and caused premiums to go up, Haderlein said.
UnitedHealth, which counts yearly sales of $70 billion, bought PacifiCare to expand in California and in supplemental plans for Medicare enrollees.
The move added about 1 million California members to UnitedHealth, “while significantly increasing access to more physicians and hospitals for PacifiCare members,” Hansen said.
Meanwhile, UnitedHealth’s been moving PacifiCare to its computer systems, which Hansen said the company has spent some $2.5 billion on in the past five years.
PacifiCare enrollees are set to get identification cards that store health records and allow providers to check eligibility. Doctors and other healthcare providers are getting online access to submit and track claims.
UnitedHealth also is looking to piggyback on PacifiCare’s traditional health maintenance organization plans with its preferred provider organizations, which allow more flexibility in seeing doctors.
The company has been sending “a lot of materials” on its PPO plans, broker Nixon said.
“They’ve been bombarding us with a lot of marketing materials and educating us on the UnitedHealth PPO plan, because it’s coming soon,” she said.
The PacifiCare name remains strong because “Orange County is so predominantly HMO,” said Greg Haack, regional sales manager for Pacific Group’s Laguna Hills office.
UnitedHealth was smart to keep the PacifiCare name for HMO plans in OC and Southern California, Nixon said.
But UnitedHealth could start putting its name forward in 2007, said Debra Lambert, president of LBL Group, a Los Alamitos insurance brokerage.
“That’s going to come eventually, because United’s a pretty strong company,” she said.
