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Read Making a Killing

home / healthcare / in the media

American Health Line
Jul 12, 2004

WELLPOINT: REGULATORS EXPECTED TO RULE ON ANTHEM DEAL AFTER; REVIEW

California insurance regulators at a state Department of Managed Health Care hearing Friday said they expect to rule "in the next few weeks" on a proposed merger between California-based WellPoint Health Networks and Indiana-based Anthem following a review of "widespread complaints" about the deal, the Los Angeles Times reports (Lifsher, Los Angeles Times, 7/10). The proposed merger, announced last October, would combine the companies under the name WellPoint and establish aheadquarters in Indianapolis. The combined company would have $27.1 billion in assets, 40,000 employees and 26 million members in 13 states. The state DMHC and the state Department of Insurance must approve the proposed merger. State Insurance Commissioner John Garamendi (D) does not have the authority to block the merger, but he can deny a request by Anthem to acquire the license of Blue Cross of California, which represents the largest part of WellPoint operations in the state. The 10 other states with direct regulatory authority and the federal government, as well as Anthem and WellPoint shareholders, have approved the proposed merger (American Health Line, 7/9). According to the Times, "little new information" was presented on the merger's "most controversial element" -- compensation packages planned for WellPoint executives that could amount to as much as $356 million in severance payments and $250 million in unvested stock options.

HEARING DETAILS

Opponents of the deal voiced concerns that WellPoint reserves or premiums paid by people enrolled in WellPoint's subsidiary Blue Cross of California would be used to fund the executive compensation packages. California Medical Association Vice President Catherine Hanson said she was concerned that the deal would increase corporate profits and administrative expenses but reduce patient-care funding, the Times reports (Los Angeles Times, 7/10). California Treasurer Phil Angelides (D) said that DMHC Director Cindy Ehnes should not approve the merger unless "the company's executives give up excessive, obscene and unearned paydays" (Rapaport, Sacramento Bee, 7/10).

Representatives from the Foundation for Taxpayer and Consumer Rights restated allegations that WellPoint "exploited a loophole to save millions of dollars" in state taxes after Blue Cross became a for-profit corporation in the mid-1990s, the Times reports. State Sen. Deborah Ortiz (D) in response asked state Attorney General Bill Lockyer (D) to investigate whether WellPoint owed the same tax premium owed by other health insurance companies. WellPoint general counsel Thomas Geiser said the allegation was a "blatant lie" and maintained that the insurer has paid all taxes, according to the Times. Anthem CEO Larry Glasscock restated that the merger would generate as much as $250 million annually in savings that could be invested in new products and technologies. He also said that premiums would not be raised as a result of the merger. Those opposed to the merger said they would "consider legal action" if Ehnes approved the deal, the Times reports. Ehnes was not present at the hearing (Los Angeles Times, 7/10).

WILL OTHER STATES RECONSIDER?

Insurance regulators in some of the 10 other states with direct regulatory authority over the merger may "reopen their reviews" of the deal, depending upon what conditions California regulators require to approve the merger, the Indianapolis Star reports. "If California is heavy handed in negotiations, it may cause other states that have already approved to reconsider," Ann Womer Benjamin, director of the Ohio Department of Insurance, said. Saeed Ali, chief of staff for California Assembly member Manny Diaz (D), said that other state insurance regulators "are going to be concerned" about "disparate treatment" toward the insurers. He added, "My concern is regulators don't go too far out here before talking to regulators in other states." However, Anthem officials said Friday that they do not believe negotiations in California will affect other states' approval of the deal (Swiatek, Indianapolis Star, 7/9).

HILTZIK OPINION PIECE
   
Anthem and WellPoint officials believe "the purchase is a fait accompli" and state officials -- including Garamendi -- cannot "do much about it," Times columnist Michael Hiltzik writes in his Golden State column. DMHC officials at Friday's hearing seemed to be "going through the motions" of investigating the merger and did not "project much eagerness to delve into the numerous consumer and financial issues raised by the proposed buyout," Hiltzik continues. Hiltzik writes that the proposed executive compensation packages seem "exceptionally wasteful"; the insurers have not shown a commitment to improve their customer service ratings; and Anthem's commitment to avoid "cherry picking" enrollees by not changing coverage for at least three years after the merger "sounds suspiciously abbreviated." Hiltzik concludes, "The key question left unanswered by Friday's hearing is why an agency whose only role is to oversee health plans hasn't taken the lead role in examining an acquisition that will affect California more than any other state" (Hiltzik, Los Angeles Times, 7/12).


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