Garamendi Airs Objections to UnitedHealth, Pacificare Deal

State Insurance Commissioner John Garamendi said Tuesday that he would oppose the planned $8.1-billion purchase of Orange County-based PacifiCare Health Systems Inc. unless he was assured that Californians will not end up paying for the deal.

Garamendi, who has authority to deny insurance mergers if he finds them harmful to policyholders, held a hearing in Los Angeles on the proposed deal. Minnesota-based UnitedHealth Group Inc., the nation’s second-largest health insurer, announced the acquisition in July.

Although the deal could still happen over Garamendi’s objections, it would become much more complicated and would be subject to a court battle, state officials said.

At Tuesday’s hearing, Robert J. Sheehy, chief executive of UnitedHealthcare, a division of UnitedHealth, said the sale would lead to an improvement of healthcare in California.

UnitedHealth, with 22 million members, would give PacifiCare’s more than 12 million members access to its nationwide network of physicians and hospitals, Sheehy said. He promised premiums would not be raised to pay for deal costs.

But Garamendi said he wanted assurances that deal costs would not result in increased premiums, that UnitedHealth would pay a penalty if there was a post-merger surge in customer complaints, that UnitedHealth would invest in community healthcare programs and that the state’s managed care system would not be eroded because of the deal.

“We must have assurances that none of the cost of this deal will come out of the pockets of providers and customers in California,” he said.

Garamendi also complained that executive compensation packages of more than $300 million associated with the deal were “unconscionable,” and said he would require that a similar but as yet undetermined amount be put back into underserved communities in California.

In the recent $17.5-billion acquisition of Thousand Oaks-based WellPoint Health Networks by Anthem Inc., Garamendi required $265 million be invested in various state projects before he approved the deal. Garamendi on Tuesday said that deal set the pattern for conditions he would impose on future acquisitions. Others, including state Treasurer Phil Angelides, have criticized the executive payouts. Directors of the California Public Employees’ Retirement System, which owns shares in PacifiCare and UnitedHealth, voted last month to oppose the bonuses.

PacifiCare spokesman Tyler Mason defended the payouts as performance-based and granted at a time when the company didn’t have the strength to attract top talent, but said the company would do what it could to address concerns.

UnitedHealth spokesman Mark Lindsay suggested his firm was making an investment in California by purchasing PacifiCare and promised future investments in its assets here would eventually improve healthcare for all Californians.

Lindsay said he believed the deal would still be finalized by the end of the year.

PacifiCare shareholders are slated to vote on the deal Nov. 17. Insurance commissioners in nine other states and 11 agencies must approve the deal, as must the Federal Trade Commission.