Congresswoman Wants DOJ Scrutiny of UnitedHealth-Sierra Deal

WASHINGTON, Nov 15, 2007 (A. M. Best via COMTEX) -- SBCO | charts | news | PowerRating -- She may be from New York, but it is the state of Nevada's health insurance market that has been weighing recently on House Small Business Committee Chairwoman Nydia Velázquez.

In correspondence with Assistant Attorney General Thomas O. Barnett, Velázquez asks the Justice Department's antitrust division scrutinize UnitedHealth's pending $2.6 billion plan to acquire Las Vegas-based Sierra Health (NYSE:SIE), noting that "if the DOJ fails to take adequate steps to ensure the marketplace remains competitive in Nevada, a dangerous precedent will be set for evaluating future health insurance mergers across the nation."

According to Velázquez, the merger would allow United Health (NYSE:UNH), the largest U.S. health insurer, to build its share of the Nevada health maintenance organization market from 12% to 80%. The company's share of the HMO market in Clark County, home of Las Vegas, would grow from 14% to 94%, according to Velázquez, D-N.Y.

"With such a dominant market position, a combined United-Sierra could attain market power to raise prices to small businesses above competitive levels," Velázquez wrote. "Small businesses will have few alternatives to a combined United-Sierra and as a consequence, will be stuck with higher premium costs. If costs rise above competitive levels, more small firms will stop providing coverage to employees, increasing the number of Nevada's uninsured."

UnitedHealth spokesman Tyler Mason said the quoted figures were "somewhat misleading," in that HMO products only represent 18% of Nevada's commercial health insurance market. Mason noted the company continues to answer questions from a number of state officials regarding its plans, including the fact that the deal will provide it with about 33% share of the state's Medicare Advantage market.

"We have had good discussions with the members of Congress from Nevada, and at the end of the day, we disagree with the comments made in the letter in that we think this will be good for small business, in providing additional benefits to members of both companies," Mason said.

First announced in March, the deal -- which the companies hope to complete by year's end -- is expected to boost UnitedHealth's business in the "high-growth" Southwest region. To satisfy merger conditions laid out by the Nevada insurance division, the companies agreed in August that they would maintain staffing levels in the local home office; wouldn't pass on acquisition costs, including executive bonuses and severance packages; and that premiums paid to, and provider fees paid by, Sierra's Health Plan of Nevada Inc. also wouldn't be structured to cover acquisition costs.

Insurance commissioners in California and Arizona also already have signed off on the deal, leaving Justice Department approval as the last remaining regulatory roadblock. In May, the antitrust division exercised its "second request" option under the federal Hart-Scott-Rodino Antitrust Improvements Act of 1976, seeking more details from the companies and extending the waiting period until 30 days after UnitedHealth and Sierra have "substantially complied" with the request (BestWire, May 18, 2007). Mason said the companies "are continuing our dialogue" with the Justice Department.

Velázquez's letter follows an Oct. 25 hearing of her committee that focused on the impact that consolidation in the health insurance marketplace could have on small business and health-care providers. William G. Plested, immediate past president of the American Medical Association, testified before the panel that, thanks to a spate of recent mergers and acquisitions -- including UnitedHealth's own acquisitions of California-based PacifiCare Health Systems and John Deere Health Plan -- the AMA now considers the managed care market in 299 of the nation's 313 metropolitan statistical areas to be "highly concentrated."

Sierra's Health Plan of Nevada currently has a Best's Financial Strength Rating of B++ (Good). The rating was placed under review with positive implications, following the acquisition announcement. Most members of UnitedHealth Group currently have Best's Financial Strength Ratings of A (Excellent) or A- (Excellent).

(By R.J. Lehmann, Washington bureau manager: raymond.lehmann@ambest.com)

More News:   Market Updates | Stock Alerts | All Trading News | Stock Index