PacifiCare Has Its Eye on the Prize : Merger Would Help Firm as It Vies for Almighty Medicare Dollar
Several years ago, when PacifiCare Health Systems surpassed arch-rival FHP International as the nation’s biggest HMO for Medicare recipients, it marked a milestone for the company--and positioned PacifiCare to exploit the nation’s emerging plans for Medicare.
FHP had pioneered the Medicare managed-care business in the early 1980s, only to stumble a decade later amid government allegations of widespread sales abuses in its senior program. PacifiCare capitalized on its competitor’s missteps with an aggressive expansion that last year pushed its Medicare enrollment past the half-million-member mark--the first HMO to accomplish that feat.
By snatching up its former competitor on Monday, PacifiCare dramatically boosted its standing as the preeminent national power in the fast-growing and lucrative Medicare HMO business.
There are about 33 million Medicare recipients nationwide, and just over 10% belong to HMOs. Now, federal lawmakers are pushing to shift more and more Medicare recipients into HMOs as a way to better control health-care costs.
Monday’s deal would give the combined firm 25% of the roughly 3.5 million Medicare recipients who belong to HMOs across the country. The federally funded Medicare program mainly serves people age 65 and over.
The merger positions the company to take advantage of what PacifiCare Chief Executive Alan Hoops described in a telephone news conference as “enormous” growth potential in Medicare.
“This is really the heart of the opportunity in bringing these two companies together,” Hoops said.
While roughly one in three Medicare beneficiaries in California belong to HMOs, elsewhere in the country only about one in 10 have joined such plans. The popularity of the HMO option to Medicare members in California probably has a lot to do with the fact that the three biggest players in Medicare HMOs--PacifiCare, FHP and Kaiser Permanente--are headquartered in this state.
The rest of the country is catching up fast, however. Nearly 100,000 Medicare beneficiaries are joining HMOs each month. In 1995, U.S. enrollment in HMOs surged 54%, to 3.4 million by year’s end.
The merger would boost PacifiCare’s Medicare enrollment to 928,000, far surpassing No. 2 Kaiser, with 415,000 Medicare members, and Humana Inc., with 336,000, according to figures supplied by health-care executives.
The Medicare business is much more attractive to HMOs than the membership numbers alone suggest.
HMOs receive from three to four times the payment for each Medicare enrollee than they do for each privately insured member. That’s because Medicare enrollees, who are sicker as a group, use roughly four times more medical services than people under age 65.
At PacifiCare, for example, the company’s 537,000 Medicare enrollees make up about 25% of PacifiCare’s overall membership of nearly 2 million. But those Medicare members accounted for 60% of the company’s 1995 revenue of $3.7 billion.
PacifiCare executives said the merger would make the company’s Medicare program, known as Secure Horizons, available in about 14 states. And the company hopes to expand beyond that.
“One of our unstated visions is that Secure Horizons will become a nationally recognized brand,” Hoops said.
PacifiCare, in particular, hopes to expand its Medicare business to more areas outside the western United States, executives said. The company already has entered such markets as Oklahoma and Texas. And it has a foothold in New England through a marketing venture with the Boston-based Tufts Associated Health Plan, which markets a Medicare HMO under the Secure Horizons name. In just two years, the Tufts-Secure Horizons program has grown into the largest Medicare HMO in New England.
Most health-care experts attribute PacifiCare’s success in the Medicare business to savvy marketing and a reputation for better-than-average customer service.
One of PacifiCare’s innovations is to enlist the help of satisfied members to help tout its Medicare program to other seniors. A small volunteer army of “Secure Horizons ambassadors” offers testimonials about the plan at meetings at coffee shops or retirement communities, trying to persuade other seniors to join. In exchange, the “ambassadors” are paid $30 to $50 for each meeting and get reimbursed for mileage, a company spokeswoman said.
Secure Horizons is also known for offering health education and fitness programs for members, including health club memberships.
“We’ve never received complaints about Secure Horizons,” said Elisabeth Lake, a Los Angeles benefits consultant for the Los Angeles Employees Retirement Assn., a group that purchases health benefits on behalf of retired county employees.
But Lake said the association canceled its contract with FHP’s Medicare program, Senior Plus, two years ago after receiving numerous complaints.
Federal statistics suggest that complaints by Medicare members against PacifiCare and FHP are similar and in line with the national average.
* THE MERGER LOWDOWN: PacifiCare plans to buy its longtime O.C. rival, FHP International. A1
* THE CONSUMER FALLOUT: How the merger would affect the 2.3 million clients in the Southland. D2
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Medicare HMOs
A combined PacifiCare Health Systems and FHP International would have 928,000 Medicare members, or more than one in four Medicare recipients nationally. Of 33 million Medicare recipients, about 3.5 million are already in HMOs, and the number is growing rapidly. The current top five HMOs in Medicare membership:
PacifiCare (Secure Horizons): 535,000
Kaiser: 415,000
FHP: 385,000
Humana: 336,000
Aetna-U.S. HealthCare*: 265,000
*Recently merged
Source: PacifiCare
