Major Health Plan Distances Itself From Members in Calif.

The nation’s second-largest health plan is greatly reducing its presence in California, shifting some or all care for nearly 1 million of its California members to nonprofit Blue Shield of California.

The deal moves Minneapolis-based UnitedHealth Group out of its money-losing California plans and out of the business of negotiating with doctors and hospitals here.

Under the deal announced Friday, 225,000 members, mostly employees of small and mid-size California-based companies, would be transferred to Blue Shield.

The other 700,000 members, mostly employees of larger companies with workers in other parts of the U.S., will nominally remain in another UnitedHealth Group unit called Uniprise. However, they will use doctors and hospitals in the Blue Shield network.

This deal closely follows two other downsizings by United. Earlier this year, United ended its Medicare HMO presence in California and cut loose 125,000 HMO members in other parts of the Pacific region, including Washington and Oregon.

The Blue Shield deal has yet to be approved by the new California Department of Managed Care.

The deal alarms consumer advocates, who see it as a bait-and-switch for patients who signed up for United’s relatively rich benefits. It is also, they say, an end run around regulators.

“The state needs to look at the need for regulating this kind of huge transfer of patients,” said Helen Schauffler, director of the Center for Health and Public Policy Studies at UC Berkeley. “This opens a door into a whole new area where there hasn’t been much attention.”

Consumer advocates immediately asked the state’s top health-care regulator to draw up rules for transferring patients to new plans, and to consider a full-blown antitrust investigation.

Schauffler said she worries that other managed-care companies will engage in even bigger exchanges--and do it under the radar of antitrust regulators who would be called in to scrutinize an outright merger.

United said it will continue to sell insurance to large employers here--those with more than 2,000 employees--as long as the companies have a significant number of workers outside California.

“It was a business decision that we could more appropriately serve certain market segments without trying to be all things to everyone in California,” said Emory Dameron, chief executive of United’s Pacific region.

On paper, Blue Shield is paying $40 million for the 225,000 members whose care it is taking over entirely. But instead of paying for them with cash, the company will simply allow United access to its physician and hospital networks to the tune of $40 million, said Seth Jacobs, senior vice president and general counsel for Blue Shield.

Once United has exhausted that amount in fees for use of the doctors and hospitals, the deal will be renegotiated, Jacobs said.

Other companies have transferred members to new insurers or sold one or more divisions to competing companies. But those cases have generally involved formal mergers, which were scrutinized by antitrust officials, or companies on the verge of bankruptcy seeking to protect members by arranging new coverage for them.

Daniel Zingale, who just two weeks ago took on the job of setting up the state’s first Department of Managed Care, said he would look particularly closely at the fate of patients whose doctors are not in the Blue Shield network.

Perhaps, he suggested, patients with acute conditions or women in late pregnancy should not be forced to switch until their treatments have been completed.

“We will review the proposal to make sure there is not disruption of care,” Zingale said.

United deliberately entered what it is calling a collaborative relationship with Blue Shield, said United spokesman Roger Cruzen, because it did not wish to simply quit or to merge with another company.

The change will affect some members more than others. Blue Shield’s network, which has 42,000 doctors is larger than United, with 37,000, and Blue Shield members are allowed to self-refer to specialists within their primary-care physician’s group.

But the two networks don’t overlap exactly; 5% to 10% of the doctors on United’s team are not affiliated with Blue Shield, so patients who see those physicians will have to find new providers.

Shares of UnitedHealth Group fell $1.25 on the New York Stock exchange Friday, closing at $84.50.