A Utah investment group hoping to buy the troubled health insurer PacifiCare says it will take 18 months to stop the company's financial bleeding and will likely go along with PacifiCare's recent decision to end service in Logan and St. George.
A Deseret News review of public documents related to the nearly completed sale of PacifiCare of Utah to a group of Utah investors calling themselves Elan Health Partners shows a troubled financial picture.PacifiCare currently insures about 130,000 Utahns, but will loose 15,000 this year as it ends Medicare coverage, and it will lose another 13,000 as it phases out coverage in Washington and Cache counties.
Apparently satisfied with Elan's proposal, state regulators appear poised to approve the PacifiCare sale. The public, enrollees and insurance groups will get their say about the issue at a public hearing 9 a.m. Thursday in Room 305 of the state Capitol.
"Everyone is pretty optimistic," said Dee Brewer, spokesman for Elan and PacifiCare of Utah.
To stop the deal, state regulators would need evidence that shows the sale would hurt competition, be unfair to policyholders or jeopardize the financial condition of the firm. Such a standard of proof is pretty steep and the Department of Insurance has never rejected a sale in the past 15 years, one official said.
If approved, the sale should close by a deadline of Sept. 30. If it doesn't, Elan will forfeit a $500,000 deposit given to PacifiCare.
Enrollee uneasiness with PacifiCare and the Talbert Medical Group, which served a large number of PacifiCare enrollees, has been apparently calmed since the University of Utah purchased Talbert to create its own medical network and the possible local buyout of PacifiCare. Departures have been limited the past two months since the two moves were announced, Brewer said.
Since 1997, when PacifiCare had about 205,000 members, about 90,000 members of PacifiCare have either bailed out of the plan or left the plan because the company has exited certain lines of business. The company expects to lose at least 15,000 more by the end of the year as it closes its Medicare line.
State insurance regulators see a public interest in favor of keeping PacifiCare, in some form, afloat.
If the sale doesn't go through, PacifiCare would either have to find another buyer or simply pull out of the state.
Finding another buyer would be difficult and a pullout would leave at least 115,000 Utahns looking for health insurance. That could be difficult for the market to absorb, according to Neal T. Gooch, deputy Utah insurance commissioner.
According to documents filed with the Department of Insurance, Elan is not expected to turn a profit with PacifiCare until March 1999. The buyers expect double digit percent losses through the end of the year at $2 million or less. The investment group - which includes health-care administrator Val Christensen and Park City investment banker Kurt Larsen - said it also anticipates having to pour more capital into the company before it reaches profitability. Currently the investment group has assets of $585,000, documents show.
The company also reported that layoffs at the firm may continue.
"Employee reductions are possible by eliminating system inefficiencies, outsourcing low-volume functions, decreased membership and improved product design," documents say.
Brewer said downsizing among employees is already under way including employees volunteering for severance packages.
If the sale goes through, Elan said it plans to concentrate its service in Salt Lake, Davis and Weber counties along with systems in Brigham City and Utah County. It might also consider keeping coverage in the St. George and Logan areas if it can renegotiate provider contracts. Marketing will play up the fact that local owners with local concerns care about local consumers.
The documents revealed a scant few more details than were already announced in July about the financial specifics of the PacifiCare transaction. Elan would buy PacifiCare of Utah through a purchase of 50,000 non-trading shares of PacifiCare stock. The stock isn't publicly valued and neither party will release details, according to Brewer.
Along with Christensen and Larsen, Stanford J. Ricks, Orem; and Glenn Boschetto; M&S Investments and KEB Enterprises are among the previously anonymous investor group. Christensen will be employed as the new CEO of the firm with a $195,000 yearly salary. He will control 24 percent interest in the firm. Larsen will control 22.2 percent. Ricks will have a 15 percent interest.
The company also has an option to lease PacifiCare's current Utah headquarters in downtown Salt Lake City from the University of Utah. The university purchased the downtown building along with the former Talbert Medical Centers.