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Read Making a Killing

home / healthcare / in the media

Milwaukee Journal Sentinel (Wisconsin)
Jan 24, 2005

by STEVE SCHULTZE, Journal Sentinel

State (Wisconsin) missed chance at health care payoff for poor;

Others saw opportunity in insurance company merger
Wisconsin missed its chance for a multimillion-dollar windfall for medical care for the needy by failing to negotiate a concession package before approving the mega-merger of two health insurance firms into Wellpoint Inc., critics of the deal say.

California will get $265 million and Georgia more than $126 million for health programs for underserved populations, through negotiations launched by regulators in those states.

The merger payout for Wisconsin, nine other states and Puerto Rico: zero.

Insurance commissioners in California and Georgia temporarily withheld approval of the merger of Wellpoint Health Networks Inc., and Anthem Inc., last year.

They said the combined firm -- now the nation's largest health insurer -- would harm consumers by reducing competition and would stick ratepayers with $4 billion in merger costs and up to $600 million for lucrative executive bonuses through higher premiums.

The deal was sealed Nov. 30 -- the same day Georgia's approval was secured in return for the promise of $126.5 million over 20 years for rural health care and a pledge that the firm wouldn't raise premiums to cover merger costs. California got its payout for investments in health care facilities in underserved communities, clinic expansions and scholarships.

The merged Wellpoint firm, based in Indianapolis, insures 28 million people in 13 states, including 800,000 in Wisconsin.

Wisconsin Insurance Commissioner Jorge Gomez approved the merger April 7. Gomez was an executive with the parent firm of Cobalt, the for-profit successor of Blue Cross & Blue Shield United of Wisconsin, when Gov. Jim Doyle named him insurance commissioner in 2003. Cobalt is now part of Wellpoint.

The much larger merged firm still sells insurance under the Blue Cross name.

While they were slow themselves to raise alarms about the merger before it became a done deal, consumer advocates now say Wisconsin missed the boat.

"It's a lost opportunity at a time when we have one of the fastest growing rates of uninsured in the country," said Bob Peterson, of the Madison-based non-profit group Advocacy and Benefits Counseling for Health.

Wellpoint has made no commitment to provide care to Wisconsin's Medicaid or BadgerCare patients -- a point that could have been pressed when the firms were seeking merger approval from the state, Peterson said.

Darcy Haber, of Wisconsin Citizen Action, called Wisconsin's failure to get on the concessions bandwagon "a tremendous loss." She charged Gomez with rubber-stamping the merger deal sought by the companies.

Decision defended

In an interview, Gomez said he lacked the authority to demand concessions like those California and Georgia got.

Wisconsin law states that mergers can be turned down if they're found to be "contrary to the interests of the insureds," to "substantially lessen competition" or to harm the financial stability of the merged company.

"When Georgia and California chose to pursue what they pursued, my decision remained intact and undeterred," Gomez said. He evaluated the Wellpoint merger using the same criteria he's used for other, smaller mergers, he said.

Richard Sweet, an attorney with the state's non-partisan Legislative Council, said Wisconsin law probably doesn't provide sufficient authority for theinsurance commissioner to withhold merger approval based on broad grounds that it might harm the public.

But Jerry Flanagan, health-care advocate for the Santa Monica, Calif.-based Foundation for Taxpayer and Consumer Rights, disagreed. He said Wisconsin's law clearly provides plenty of room to hold up mergers based on likelihood of passing along "burdensome" merger costs to consumers.

Since the merger approval, Wellpoint has announced rate increases in Wisconsin of 9% to 20% on four of its health programs, which don't require any state approval. Annual health insurance rate increases are routine, said Eileen Mallow, assistant deputy insurance commissioner for Wisconsin.

"It's the job of the regulator to protect the interests of the patients," Flanagan said. Appointed insurance commissioners, such as Gomez, tend to approach mergers very cautiously and take their cues from their boss, the governor, Flanagan said.

Gomez said he considered stepping aside from deciding the Wellpoint-Anthem merger, but decided not to because "I was not ever employed by Wellpoint."

"There was no conflict," he said. "There was no financial tie with Wellpoint." Gomez's financial disclosure statements filed with the state Ethics Board don't list any stock or other financial links with the insurance firms.

Doyle has received $47,287 in campaign donations from executives of Blue Cross and its successor firms since he ran for governor in 2002, according to analysis by the non-profit Wisconsin Democracy Campaign.

The governor's contributions included $1,500 that Wellpoint Chairman and Chief Executive Leonard Schaeffer contributed -- part of it just before and part just after the giant merger was considered.

Those donations had no "absolutely" no connection with Wisconsin's approval of the merger, said Melanie Fonder, a spokeswoman for Doyle.

She echoed Gomez's view that Wisconsin's law didn't allow for cutting deals on the Wellpoint merger. Fonder said she was uncertain whether Doyle would back a change in the law to broaden the authority of the insurance commissioner.

Wellpoint spokesman James Kappel said the merger was thoroughly reviewed by Wisconsin and other states.

"We fully met all the statutes in the state of Wisconsin, as reviewed by Commissioner Gomez," Kappel said. "This is a merger that will benefit all of our members in all of our states."

Different approaches

Gomez approved the Wellpoint-Anthem merger after public hearings produced no formal objections to the plan. Other states also quietly endorsed the merger until July, when California Insurance Commissioner John Garamendi balked. John Oxendine, Georgia's insurance regulator, then rescinded his state's approval.

Settlement deals for both states were completed in November. And, despite hints that some other states might reconsider their approvals, the overall merger was finalized Nov. 30.

The reason Wisconsin and other states failed to win concessions boils down to the obvious, said consumer advocate Flanagan.

"You can't get what you don't ask for," said Flanagan, whose group opposed the merger. "The reason California got concessions and Wisconsin didn't was the elected commissioner in California demanded it."

Mallow, the Gomez deputy, acknowledged Wisconsin insurance regulators took notice of the California and Georgia concession packages. But she described such efforts as akin to blackmail.

"I don't want to use the word blackmail, but that was kind of what was going on," Mallow said.

She suggested another reason that no effort was made to secure concessions on the Wellpoint-Anthem merger: Wisconsin's medical schools had already obtained a $600 million fund when Blue Cross sought permission to become a for-profit company.

Haber, of Wisconsin Citizen Action, said the group was worn down from the fight over the use of the $600 million fund when the latest merger came along.

"We felt we couldn't commit any more resources," she said.
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Contact the author at: sschultze@journalsentinel.com


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