9 out of 10 California Patients Will Pay Too Much In WellPoint/Anthem Merger

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California Insurance Commissioner John Garamendi‘s approval of the buyout of Blue Cross‘ parent company, WellPoint Health Networks, by Anthem Inc. leaves 90% of California Blue Cross patients to pay for up to $4 billion in transaction costs and executive payouts because Garamendi’s deal only covers the 10% of Blue Cross members under his jurisdiction. Governor Schwarzenegger failed to require similar protections for the managed care patients his administration oversees, according to the Foundation for Taxpayer and Consumer Rights (FTCR).

90% of Blue Cross‘ California patients are enrolled in HMO and PPO plans regulated by the Schwarzenegger Administration’s Department of Managed Health Care, which approved the merger without limiting how much patients could be forced to pay. Commissioner Garamendi’s Department of Insurance has jurisdiction to approve the sale of one of WellPoint‘s California companies, Blue Cross Life and Health. Garamendi’s approval is contingent upon contributions to underserved communities and protections for policy holders.

“Garamendi’s deal took from the rich to give to the poor but company executives and Wall Street financers still got far more than they deserve,” said Jerry Flanagan of FTCR. “9 out of 10 California Blue Cross patients will pay for hundreds of millions of dollars in executive pay-outs and up to $4 billion in transaction costs because Governor Schwarzenegger failed to stand up to a health insurer and its executives that have contributed more than $140,000.”

Governor Schwarzenegger has received $142,400 in campaign contributions to his various fundraising committees from Blue Cross of California and WellPoint — including a $50,000 contribution made in October during merger negotiations.

The details of the Schwarzenegger Administration’s approval would allow the new merged company to remove approximately $650 million in premium-funded reserves from the state of California and require patients to pay the $4 billion cost of the merger in the form of higher premiums. Company executives will be allowed to receive up to $600 million in cash and stock under the terms of the merger.

“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 hundreds of million of dollars when more than 6 million Californians cannot afford basic health coverage.”

Garamendi announcement included $265 million in concessions to underserved communities, however FTCR noted the following concerns:

** Of the $265 million, $200 million would be paid in the form of investments to underserved communities over 20 years. FTCR noted that the $200 million investment will likely return a profit for the company

** Blue Cross of California patients are likely to pay for the $265 million in concessions since the Department of Managed Health Care that regulates that part of WellPoint‘s California holdings did not put in place adequate safeguards.

** Very little if any of the $265 million in pay-outs will benefit the Blue Cross of California enrollees whose premiums will likely fund the investment.

Garamendi said his agreement with WellPoint and Anthem requires the companies to hold Blue Cross Life and Health premiums to the rate of medical inflation for several years following the merger. Schwarzenegger’s Department of Managed Health Care did not require similar provisions for the much larger Blue Cross of California.

“Other state regulators will likely take another look at this deal and require similar concessions to those that Garamendi required,” said Jerry Flanagan. “The unfortunate result is that 9 out of 10 California Blue Cross patients will pay the price of those out-of-state concessions because Governor Schwarzenegger’s approval was a license to steal.”

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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

Consumer Watchdog
Consumer Watchdog
Providing an effective voice for American consumers in an era when special interests dominate public discourse, government and politics. Non-partisan.

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