Insurance deal sails by with ‘big holes’

By Marshall Allen (contact)

Monday, Aug. 27, 2007 | 10 p.m.

The conditions placed Monday on the proposed takeover of homegrown health insurance giant Sierra Health Services by national titan UnitedHealth Group were no surprise to the two companies. They practically wrote them themselves.

Moreover, many of the conditions developed by Nevada Insurance Commissioner Alice Molasky-Arman in allowing the merger will expire after a two-year “acquisition period” -- barely longer than it takes the dust to settle from the monumental merger. The proposed $2.6 billion deal is being scrutinized by the U.S. Justice Department and the Nevada attorney general's office for antitrust concerns.

During the two-year acquisition period, the insurance commissioner ruled, United must:

• Maintain Sierra Health's methods for determining rates and fees, paying claims and determining benefits.

• Keep Sierra Health's home office, location of its books and records and management team in Nevada.

• Keep 75 percent of Sierra Health employees in Nevada.

Peter O'Neill, spokesman for Sierra Health, said he was “quite pleased” with the commissioner's decision. Her conditions were developed in cooperation with the two companies, and showed they listened to the concerns of critics, O'Neill said.

Some critics of the merger, which many say will give United a monopoly on health insurance, say it's significant that Molasky-Arman required any conditions before giving her regulatory blessing because it shows the merger is bad for consumers and health care providers.

Other critics called Molasky-Arman's conditions a joke.

Assemblywoman Sheila Leslie, D-Reno, said Molasky-Arman's decision has “lots of big holes.” For instance, one of the commissioner's conditions said the companies will continue and build on their charitable giving. But it does not specify how.

“What does that mean?” Leslie said. “Does it mean $1? This is laughable.”

Sierra Health is the state's largest health insurance provider, covering about 630,000 Nevadans, most of them in Clark County, and working with thousands of medical providers.

Critics say that post-merger United will have the leverage to increase costs borne by consumers and business owners, and lower its payment rates to medical providers. Proponents say United would introduce advanced technologies, add efficiencies of scale and connect Nevadans to a national network of providers.

In a statement, Gov. Jim Gibbons said he was “deeply disturbed” by the “monopolistic tendencies” from the merger, and suggested that Nevada law prevented the commissioner from “acting more forcefully to curb these potential threats.”

Leslie, chairwoman of the Assembly Health and Human Services Committee, said the commissioner's decision “takes us in the wrong direction.” She said instead of allowing the companies to get bigger, the focus should be in making health insurance more affordable.

She said she wants to take a close look at the decision but said the Justice Department “is our next stop.”

Assembly Speaker Barbara Buckley said, “I don't think Nevada's interests were protected,” and hoped the attorney general and the Justice Department will fight for Nevada's interest.

She said the order was vague, and pointed out that other states held United to higher standards. In Colorado, United announced it would contribute $7.5 million for a mobile rural health clinic the same day the state approved a merger there. In California, United was ordered to give $250 million to charity as a condition.

Larry Matheis, executive director of the Nevada State Medical Association and an outspoken opponent of the merger, said the conditions are inadequate, but do demonstrate that the merger is problematic. It's one thing for the companies to make promises before the merger, but it's more significant for the commissioner to hold them to them, he said.

“The commissioner looked at it from what she is charged with, the narrow frame of state insurance law,” Matheis said. “These are very stringent conditions.”

The attorney general's mandate, in contrast, is much more broad, Matheis said.

“We are going to provide to the attorney general and Department of Justice any information they need,” Matheis said.

Antitrust attorney David Balto, a critic of the merger from Washington, D.C., said the commissioner's decision was troubling because United is well-known for incurring enormous fines -- more than $5 million in the past two years -- for flouting insurance regulations.

“The conditions here are probably well intended,” Balto said. “But they're doomed to failure.”

Balto said Molasky-Arman's decision could be appealed in court, but there was no indication Monday that anyone intended to.

Marshall Allen can be reached at 259-2330 or at marshall.allen@lasvegassun.com.