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The Indianapolis Star
May 11, 2005
by Jeff Swiatek
California is taking close look at WellPoint's rate increasesWellPoint Inc. will be forced to justify its premium rate increases in California on Friday at a public hearing by that state's regulators.
California's Department of Managed Health Care wants to know if Indianapolis-based WellPoint is using member premiums to help pay for its $20.8 billion purchase of the parent of Blue Cross of California that was finalized last year.
In an agreement with California regulators, WellPoint, formerly Anthem Inc., agreed not to use premium dollars to pay for the merger. California regulators extracted the pledge from Anthem after putting the company through the regulatory wringer, approving the merger deal after several public hearings, a lawsuit and a pledge by Anthem to spend $ 265 million on health care programs benefiting the poor and others in California.
On March 1, WellPoint raised premiums by an average of 13 percent for Blue Cross of California individual and family members. The increase "is not in any way, shape or form tied to any merger-related costs," said Blue Cross of California spokesman Michael Chee.
He said the hike reflects increases in health care costs, including hospital and doctor fees, charges for medical services and prescription drug prices.
Officials of the California Blue Cross unit will "openly address" questions about the premium increase at the hearing in Sacramento, Chee said.
The other insurance regulator in California, the Department of Insurance, also is looking into WellPoint's rate increases, although it hasn't scheduled a public hearing.
"This is specifically to look for merger costs hidden within their filing," said insurance department spokesman Norman Williams.
If regulators find any portion of rate increases is earmarked to fund merger costs, that portion will be disallowed, Williams said.
Jerry Flanagan, consumer advocate for the California consumer group Foundation for Taxpayer and Consumer Rights, said "All the evidence suggests they (WellPoint) passed on" merger-related costs to California members, because the rate increases are "much larger than the industry average."
"We need a full investigation," he said.
Friday's hearing will take place three days after WellPoint Inc.'s first shareholders meeting, a brisk 28-minute affair held Tuesday that included an upbeat message from President Larry C. Glasscock.
He said the merger has allowed WellPoint to shave $ 25 million from administrative expenses in the first quarter.
The merger created the nation's No. 1 health benefits company, with 28.5 million members.
"It's come together beautifully," Glasscock said of the merger.
Shareholders elected five directors, ratified a corporate accountant and rejected the only shareholder proposal, a call by the AFL-CIO for the company to reduce the use of stock options as an incentive to top executives.
Three shareholders asked questions of management, wondering if the company ever will pay a dividend, why it's splitting its stock 2-for-1 this month, and where the company's stock price will be a month from now.
Glasscock parried the stock price question, saying, "I'm not clairvoyant."
As for paying dividends, Chairman Leonard D. Schaeffer said only that the board has rejected the idea in the past but will consider it again this year.
The meeting at WellPoint's Downtown headquarters drew about 90 people.
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