United Press International
LOS ANGELES, CA — While Gov. Arnold Schwarzenegger has been getting his kudos for leading the overhaul of California’s worker’s compensation system, the state remains locked in squabbles over insurance on several fronts.
The state’s point man — or lightning rod — in relations between the nation’s most populous state and the equally massive insurance industry is Insurance Commissioner John Garamendi, who could probably be forgiven for his icy tone during Friday’s public hearing on the proposed $16 billion merger of healthcare heavyweights WellPoint and Anthem.
“Don’t shine me on, just come forward with the numbers,” Garamendi said wearily as he grilled the executives testifying at the hearing in Los Angeles.
WellPoint and Anthem have been attempting to convince Garamendi that their proposed union would only improve the lot of the 7.4 million Californians covered by Blue Cross of California, which is owned by WellPoint.
However, insurance has become a testy issue in California, and Garamendi faces a worst-case scenario in which worker’s comp premiums continue to act as a drag on business; residents of wildfire-prone areas are unable to buy fire insurance, and low-wage workers find themselves permanently shunted off to Medicare and other public programs.
The worker’s comp reforms championed by Schwarzenegger made it through the Legislature earlier this year but have thus far produced fairly modest reductions in premiums, and the business community is insisting that a Gray Davis-era bill requiring healthcare benefits for small business be repealed as well.
The California Public Employees’ Retirement System this spring adopted a balkanized rate structure that could cause HMO premiums for state employees and retirees in parts of Northern California to increase nearly 24 percent this year, while some Los Angeles-area members would see theirs reduced nearly 9 percent.
And on Wednesday, the Assembly Insurance Committee voted down a bill that would prohibit insurers from dropping policyholders who put in claims after their homes have been consumed by wildfire.
“This ‘use it and lose it’ syndrome must end,” Garamendi said in a release. “Californians should not be afraid to use their policies when they have a legitimate claim.”
While it looked as though Garamendi’s concern was with individuals, it would be an understatement to say that California’s real-estate sector would be thrown into chaos if scores of suburban and rural homes valued in the six figures were suddenly uninsurable.
So, Garamendi was in a fighting mood when the WellPoint-Anthem deal came about.
He was egged on by consumer advocates who saw the transaction as doing nothing to improve service in California but draining an estimated $400 million out of the state to pay part of the $4 billion in transaction costs.
The $4 billon would go toward the payment of $23 per share to Anthem shareholders and to cover the fees of lawyers and investment bankers. In addition, there are the controversial payoffs to executives who would be made redundant.
“HMO executives should not be allowed to feed at the trough at the expense of California patients and business owners,” said Jerry Flanagan of the Foundation for Taxpayer and Consumer Rights said in the latest of its many angry statements on the merger. “The companies must be required to significantly reduce these obscene executive payouts and guarantee that Blue Cross of California’s $1 billion in reserves are kept in the state.”
Anthem Chairman Larry Glasscock took the lead for the two companies Friday and pledged that the merger would not result in lost benefits, higher premiums or any overall weakening of the combined company’s capital strength.
“This merger is about building a company that will be stronger and have the ability to build upon the current institutional protections,” Glasscock said.
The insurers contend that the healthcare game is becoming one in which size matters and that in order to survive, the companies that bankroll the health maintenance organizations have become the principle source of medical care for virtually everyone in the United States with a job.
The companies contend that the reduced overhead, improved pharmaceutical purchasing power and a planned information-technology upgrade will lead to the kinds of savings that will allow them to pay for the merger without weakening its California reserves.
“We’re making a good-faith effort to address your concerns to the extent they aren’t controlled by other factors,” WellPoint counsel Tom Geiser told Garamendi. “All of us want well-capitalized firms that will make sure that the claims of patients and providers are paid.”
But Garamendi has too much riding on his decisions — and not just in terms of the impacts on the public. The veteran Democratic politician ran for governor in 1994 and could be a prospective candidate again, but not if he presides over a collapse of California’s insurance industry.
He therefore isn’t about to be mollified by upbeat predictions and glad-handing from the industry he is supposed to be regulating.
When the executives at Friday’s hearing informed him that their rates are determined in part by the policyholder’s age and ZIP code, Garamendi pounced and darkly warned them that they had entered dangerous territory.
“When you talk about ZIP codes in Los Angeles, you are talking about race,” he said, apparently assuming that Los Angeles is segregated.
That allegation was quickly denied; however, Garamendi brushed them aside and reminded them that he had dealt in the past with allegations of redlining in the auto-insurance field.
Auto insurance wasn’t on Friday’s agenda, but it is one of the many knotty insurance issues that will continue to overflow Garamendi’s plate.
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