Companies agree to spend more on underserved communities

The San Francisco Chronicle

Insurance Commissioner John Garamendi dropped his objection to Anthem Inc.’s purchase of WellPoint Health Networks Inc. after the companies agreed to spend $265 million, more than double their previous commitment, on health programs for low-income Californians.

Tuesday’s announcement clears the most important hurdle to the $16.4 billion acquisition, which would create the largest health insurer in the country, with some 28 million members. Under the agreement, the merged company will invest $200 million in underserved communities in California over 20 years. It will also award grants of $35 million to help health care clinics, $15 million to support nurse training programs in community colleges and $15 million to improve
outreach for Healthy Families, which provides health care to poor children.

Garamendi, who regulates a WellPoint subsidiary called Blue Cross Life & Health, withheld his approval in July because of what he said were excessive severance and other payments to departing WellPoint executives. He warned then that Californian policyholders could end up paying those costs, which he said could be as high as $600 million, through higher premiums.

“What we have here is a significant improvement,” Garamendi said at a press conference in Los Angeles. “While I remain concerned about the consolidation and enormous size of this company… Californians will not pay for the merger and Californians will directly benefit.”

Garamendi said the agreement assures that if payouts to WellPoint executives exceed $265 million, the company will increase its investment in California by the same dollar amount. He estimated that acquisition costs could go as high as $4 billion, expenses he said California policyholders could wind up paying.

Even with Garamendi’s approval, the companies need approval from other regulators before the deal is completed.

California’s Department of Managed Health Care, which previously approved the transaction, said Tuesday it will take another look. The department regulates WellPoint‘s Blue Cross of California unit, which accounts for 90 percent of the company’s membership in the state.

“Blue Cross did not consult with us prior to their agreement with (Garamendi). We will now review its provisions to ensure that each and every California ratepayer receives the same protections,” the department’ director, Cindy Ehnes, said in a statement.

A department spokeswoman said Ehnes wants to make sure that the WellPoint California customers she represents won’t see higher premiums as a result of the latest concessions.

Ten states and Puerto Rico have jurisdiction over the merger. Regulators from several states have been watching developments in California. Georgia Insurance Commissioner John Oxendine, who had earlier withdrawn his approval pending a resolution of the California dispute, said in a statement Tuesday that he is reviewing the new developments.

After news of the settlement, shares of WellPoint, based in Thousand Oaks (Ventura County), rose $8.93 to close at $113.90 Tuesday. Anthem’s shares closed at $91.23, up $4.73.

Anthem Chief Executive Officer Larry Glasscock said the company will withdraw a lawsuit challenging Garamendi’s authority to block the WellPointacquisition and move quickly to complete the deal. “We are well prepared to quickly and successfully integrate our two organizations,” Glasscock said in a statement.

WellPoint CEO Leonard Schaeffer said: “All of us at WellPoint are pleased with the very thorough approach that both the (Department of Managed Health Care) and the (Department of Insurance) took to ensure that our merger would best serve the interests of Californians.”

Health care advocates said that they are glad Anthem and WellPoint had made additional concessions but that they are still worried about the impact of the giant merger on California consumers.

“Nationally, what Garamendi’s negotiations have done is set a bar for future mergers that says company executives have to give back as much as they take,” said Jerry Flanagan of the Foundation for Taxpayer and Consumer Rights, a Santa Monica consumer watchdog group that has been critical of the deal.

Anthony Wright, executive director of Health Access, a California coalition of consumer and labor groups, said he was especially pleased by a provision that requires the companies to commit funds to make quality of care improvements in detection and prevention of certain diseases.
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E-mail Victoria Colliver at [email protected]