Awaiting Agency's Scrutiny of PacifiCare

So we should probably be grateful that the proposed acquisition of PacifiCare Health Systems Inc. by UnitedHealth Group Inc. offers the state Department of Managed Health Care an opportunity to get limber. We ought to be a mite uneasy, too, though, because the last time the agency -- which bills itself as "the only stand-alone [HMO] watchdog agency in the nation" -- had a chance to show that it was more than a waste of office space, it was largely a no-show.

The occasion was last year's combination of WellPoint Health Networks Inc. and Anthem Inc. This was a $15.5-billion deal to create the nation's largest health insurer, under terms suggesting that it would drain hundreds of millions of California premium dollars out of the state, much of it into the pockets of the executives who crafted the deal.

The state agency gave this proposal what its director, Cindy Ehnes, later described as "our highest level of scrutiny" in a process that she said "allowed for public participation in this important policy matter." Her agency held how many public hearings, exactly? One. Ehnes didn't even bother to attend.

The only reason the agency went that far before rubber-stamping the deal was that Insurance Commissioner John Garamendi embarrassed it into mounting a public show of "scrutiny." Garamendi had limited jurisdiction over WellPoint, but exploited it to the max, blocking the deal until the companies coughed up a few concessions.

The PacifiCare-UnitedHealth deal doesn't raise the same issues that arose with WellPoint. PacifiCare ranks only fifth among the state's HMOs, with 1.7 million members. WellPoint's Blue Cross of California ranks second, after Kaiser, with 4.7 million.

The compensation flowing to executives as a result of the deal doesn't look to be quite in the WellPoint league. Not that UnitedHealth is all that frugal: Its chief executive, William McGuire, led the compensation derby of health plan CEOs last year with $8 million in salary, bonus and perks, which puts him in a funny position when he lectures the rest of us that "there is not enough money

Still, the deal is hardly innocuous. It won't necessarily reduce the number of HMOs in California (UnitedHealth has minimal presence in California). But the further fattening of UnitedHealth, already the nation's second-biggest insurer, could inspire more such combinations, some of which -- say a Cigna Corp.-Aetna Inc. deal -- would significantly diminish competition in the local healthcare market.