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Read Making a Killing

home / healthcare / in the media

The Daily News of Los Angeles
Jul 10, 2004

by Harrison Sheppard, Sacramento Bureau

CRITICS SLAM MERGER PLANS;

ANTHEM, BLUE CROSS PARENT TO COMBINE?
SACRAMENTO - Critics assailed the proposed merger of Blue Cross of California's parent company with Anthem Inc. in a hearing before state officials Friday, saying it would result in the loss of jobs from California and a lower quality of health care.

Critics are concerned that the deal will result in excessive compensation and bonuses to the two companies' executives, and that patients will be paying the cost through their premiums. The companies estimate that the bonus and severance packages for their executives completing the deals will total about $200 million, but critics said it could climb as high as $600 million - equivalent to the amount of money needed to provide health insurance to tens of thousands of California families for a year.

State Treasurer Phil Angelides called the executive payouts "excessive" and "obscene."
"They will get the bonus just for showing up and doing the job they are already being paid to do - millions in extra pay for being kept on at a job at a time when many Californians worry whether they will even have a job tomorrow," Angelides said.

The payouts include about $76 million in bonuses, stock options and retirement benefits to WellPoint Chief Executive Leonard Schaeffer, according to a California Public Employees Retirement System analysis.

Also, critics from the Foundation for Taxpayer and Consumer Rights contend that the new parent company might seek to siphon off about $650 million in reserves that Blue Cross has built up over the years through premium payments - and then use that money to pay the bonuses. Company officials denied that, saying that Anthem, not WellPoint, will fund the executive payouts.

The hearing was before the state Department of Managed Health Care, which is expected to decide in coming weeks whether to approve the merger in California. Ten other states have already given approval to the $16.5 billion deal and both companies' shareholders gave their OK last month by 97 percent margins.

Insurance Commissioner John Garamendi, who has authority over a smaller portion of the deal, has also expressed opposition and threatened to block the deal unless there are stronger protections for Blue Cross financial reserves.

Indiana-based Anthem has been seeking to merge with Thousand Oaks-based WellPoint Health Networks Inc. - the parent company of Blue Cross of California - since last year. The combined entity, to be called WellPoint, would have 28 million patients across the country.

Officials with both insurers sought to reassure Californians that the quality of health care they receive will not decline, and could in fact improve if the merged company can save money through elimination of redundant administration.

"Californians can continue to count on a financially strong and stable company to be there when they need it to pay their claims for their health care expenses," said Larry C. Glasscock, Anthem's chairman and CEO, who would become president and CEO of the combined company.

"I also want to make this clear: I want to reaffirm once again, and I've said this several times, that premiums will not be raised as a result of this merger. This merger will add to the choice of products and services available to our customers, not to the premiums they pay."

Glasscock said while the corporate headquarters would remain in Indianapolis, the company believes in local control and currently maintains only about 250 employees at its headquarters for a company of 20,000 employees overall. He said the combined company should be able to attain $250 million in savings per year through "synergies."

Leonard Schaeffer, WellPoint's chairman and CEO, would become chairman of the new company's board of directors.

Other critics of the deal included the California Medical Association, which thinks 3,000 to 4,000 jobs could be moved out of state after the merger, and the Latino Coalition for a Healthy California, which is concerned about the merger's effect on uninsured children and their parents.

Patricia Diaz, the coalition's policy director, said companies should demonstrate their responsibility by investing in California's working poor.

"So far, they have not shown a commitment to that," she said. "And we really need more information about what this merger looks like. The Department of Managed Health Care should be willing to provide more information."

Diaz also questioned the department's seemingly passive approach to a merger that has been in the works for about eight months. She said Friday's public hearing should have happened months ago and that the department needs to practice more vigilance.

WellPoint shares declined 31 cents to close at $108.99 on the New York Stock Exchange, while Anthem shares were unchanged to close at $87.45.
---------------
Staff Writer Evan Pondel contributed to this report.

Contact the author Harrison Sheppard at: (916) 446-6723 or harrison.sheppard@dailynews.com

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