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Read Making a Killing

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NEWS RELEASE
Jul 23, 2004


CONTACT: Jerry Flanagan, (310) 392-0522 ext. 319

Schwarzenegger Folds to Special Interests, OKs WellPoint/Anthem Merger; Garamendi Says "No" on Patients' Behalf

Following the Schwarzenegger Administration's approval this morning of the pending buy-out of Blue Cross of California's parent company, WellPoint, by Anthem, the Foundation for Taxpayer and Consumer Rights (FTCR) applauded Insurance Commissioner John Garamendi's opposition to the deal that could cost California patients up to $4 billion.

Commissioner Garamendi cited up to $4 billion or more in costs to patients as the reason for his refusal to ok the buy-out of Blue Cross Life and Health insurance company by Anthem. Earlier in the day the Schwarzenegger Administration's Department of Managed Health Care approve the Anthem's purchase of Blue Cross of California, which sells HMO and PPO products in the state.

"Commissioner Garamendi acted today on what every Blue Cross of California patients must be thinking: $600 million in executive payouts are not in the best interest of patients. Garamendi has firm ground to deny this merger because $600 million in golden parachutes for company executives and $3.4 billion in debt payments will cost patients too much," said Jerry Flanagan of FTCR. "Not only do Californians owe Garamendi a debt of gratitude, they owe him a debt of $4 billion."

The details of the Schwarzenegger Administration's approval of the pending merger allows the new merged company to removed hundreds of millions of dollars in premium-funded reserves from the state of California -- a figure that could easily far exceed the levels of executive payouts.

"Once again, Governor Schwarzenegger has broken his promise to stand up to special interests," said Jerry Flanagan. "It is obscene to allow company executives to cash-out with $600 million while more than 6 million Californians cannot afford basic health coverage."

Governor Schwarzenegger has received $92,400 in campaign contributions to his various fundraising committees from WellPoint and its executives.

The Foundation for Taxpayer and Consumer Rights has also questioned why Blue Cross of California has not paid up to $500 million in gross premium taxes on its preferred provider (PPO) products. Though Blue Cross of California does pay a much lower tax on its overall net income, the company has avoided paying a gross premium tax on its PPO products. Every other similarly situated for-profit company that sells PPO products in the state pays the gross premium tax. FTCR has called on legislators and regulators to investigate Blue Cross' refusal to pay the gross premium tax required by Article XIII, Section 28 of the California Constitution. The differential between the net income tax Blue Cross of California has been paying and the gross premium tax the company should have been paying was at least $50-60 million in 2003, depending on the actual amount of the company's net income tax payments that are not publicly available.

"There are substantial legal questions that need to be resolved about the company's past tax debt. We believe WellPoint and Anthem shareholders must be told that they may have to pay the bill for this apparent tax dodge," said Flanagan.

Click here to read FTCR's most recent analysis of Blue Cross of California's unpaid gross premium tax.

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The Foundation for Taxpayer and Consumer Rights is a non-profit and non-partisan consumer advocacy organization. For more information, visit us on the web at http://www.consumerwatchdog.org



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