PacifiCare Aims to Secure Wider Medicare Horizons
PacifiCare Health Systems Inc., one of California’s biggest health insurers, may be able to profit from the malaise in Medicare coverage that plagues its rivals.
Two big competitors, United HealthCare Corp. and Foundation Health Systems Inc., dismayed investors over the past week with losses on Medicare, as the government moves to cut growth in spending on its health insurance for the elderly.
Santa Ana-based PacifiCare has bucked the trend with its Secure Horizons model. Its policy of contracting with doctors to assume the full risk of caring for its members, a process known as capitation, has allowed it to report stable earnings from the program.
“Secure Horizons is a great product,” said Brendan Healy, an analyst for the $1 billion USAA Growth and Income Fund. Health maintenance organizations get fixed monthly payments from the federal government for caring for elderly patients enrolled in the Medicare program. The payments range from $367 in low-cost rural areas to more than $700 in high-cost urban locations.
United HealthCare’s disclosure of problems with its Medicare programs last week wiped out $2.9 billion in market capitalization and torpedoed its planned acquisition of Humana Inc. The unexpected Medicare losses raised concern about the company’s overall health. Foundation’s losses in Medicare plans in the Northeast and rural California offset profits on Medicare programs in large California markets.
PacifiCare, which generates most of its profit from Medicare, is looking to boost earnings by expanding Secure Horizons to big new markets, said Craig Schub, president of the company’s Secure Horizons USA unit.
The company could get into the markets by acquiring a troubled competitor, setting up a new HMO or entering an agreement to manage one that’s already in business, he said.
PacifiCare is looking at the New York metropolitan area, where money-losing competitor Oxford Health Plans Inc. has stopped marketing its Medicare plan to new members following a federal review that criticized the company.
Other possibilities include Detroit, Chicago, New Orleans, Cleveland and Wichita, Kan.
