Managed Care Matters

Roy Poses has some interesting insights into the financial benefits and costs of the pending Pacificare-UnitedHealth merger in his blog Health Care Renewal. Dr Poses notes that two of the execs involved both make over a hundred million this year or will make it if this deal gets done.

He also highlights Dr. Alain Enthoven's views on the deal, citing his credentials as a:

"charter member of the Jackson Hole group, and long-time advocate of managed competition... "I don't see this as beneficial to California consumers or employers...I regard this as a loss and doubt there are any economies of scale to be achieved here."

The LA Times quotes UHG CEO Bill McGuire on the business justification for the deal; ""There is not enough money … to pay for the healthcare system as it operates today. It is indiscriminate, it is non-scientifically based, it is founded on anecdote as much as it is science. We have to change course."

Note that Enthoven et al are struggling with understanding how this deal will improve the McGuire-described landscape...as am I. Additional views on this are in yesterday's CaliforniaHealthLine (if you don't subscribe, you should). Most center on the dubious claim that the merger will somehow benefit consumers, with several groups and individuals voicing serious doubts about the likelihood of that happy outcome...

"Jack Lewin, president of the California Medical Association, said, "There's no discernable benefit to the consumer for this. The benefit is to the companies and their shareholders."

"Anthony Wright, executive director of Health Access California, said, "Because the health industry is dominated by only a few big players, there's less competitive force to try to bring down the price of health care"

"Jerry Flanagan of the Foundation for Taxpayer and Consumer Rights said that the acquisition would result in less choice for consumers, lower reimbursements for physicians and hospitals and more waste in the health care system unless regulators establish conditions for the agreement"

and perhaps most importantly,

"California regulators likely will "focus on access to quality health care" rather than antitrust issues. Insurance Commissioner John Garamendi said, "My department has established a very clear position on health care industry consolidations and the effect that they may have on consumers"

Faithful readers will recall the delays and eventual concessions brought on by Garamendi's resistance to the Anthem-Wellpoint deal. With little to no real evidence of McGuire's claimed positives for consumers, there is growing skepticism amongst consumers and regulators about the societal benefits of these mergers.

I see this as capitalism pure and simple. And that is not necessarily a bad thing. However, McGuire et al make a serious mistake when they characterize a business deal meant to benefit their stockholders as a plus for society. That is not what for-profit corporations are designed to do. Rather than make unsupportable claims, better if they just state they are doing it to drive more profits, pay the merger-associated costs, and be done with it.

There will be much more to come on this issue.

What does this mean for you?

Watch this carefully, as the fight over Pacificare-UHG will be much tougher than the Anthem-Wellpoint deal. Garamendi is the "big stick" here, and he will exercise that size vigorously. The path this takes will have a major influence on future health insurance deals.