Garamendi still not satisfied with healthcare merger plans

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Ventura County Star

California Insurance Commissioner John Garamendi said Tuesday that WellPoint Health Networks Inc. and Anthem Inc. so far have failed to satisfy his objections about their pending $16.5 billion merger.

“This merger presents policyholders in California and policyholders across the nation with substantial problems,” Garamendi said during a telephone press conference. “So far, what I’ve seen about what they intend to do to answer my concerns is disappointing.”

WellPoint is the parent of Blue Cross of California and Blue Cross Life & Health Insurance Co., the latter of which is regulated by Garamendi’s office. California is the only state left to sign off on the deal, which received overwhelming approval from shareholders last week.

At a June 25 public hearing in Los Angeles, Garamendi called on the companies to make an investment in healthcare for the state’s poor, equal to executive retention bonuses and severance pay in the merger. He also demanded stronger guarantees that the companies would not, even indirectly, cause policyholders to pay for the merger through higher premiums.


The merger has received the most resistance in California because WellPoint‘s corporate headquarters in Thousand Oaks would move to Anthem’s home in Indianapolis. Top WellPoint executives could receive an estimated $200 million to $600 million in retention bonuses or severance, including the value of stock options.

“My approval is resting solely on Anthem-Wellpoint restructuring this deal in such a way as to benefit California consumers, policy holders in the state of California and those who cannot afford insurance,” Garamendi told reporters. “We demand California low-income individuals benefit from this deal.”

Garamendi said Tuesday he’d leave it to the companies to determine how that contribution might be structured, but noted $200 million alone would pay for one year of coverage for 170,000 children through the state’s Healthy Families program.

Garamendi doubts promise

Since the new company’s main income source would be dividends from subsidiaries such as Blue Cross, Garamendi said he finds it difficult to believe Anthem can guarantee policyholders eventually would not foot the bill for nearly $400 million in debt that Anthem would assume to pay off WellPoint‘s shareholders and cover other transaction costs.

“The companies have a large hole to fill,” Garamendi said.

WellPoint spokesman Ken Ferber said the companies were encouraged by Garamendi’s comments that he would leave the details of the contribution to WellPoint and Anthem.

WellPoint still has concerns about Garamendi’s request that the investment target poor and uninsured Californians, instead of directly benefitting Blue Cross policyholders, Ferber said. One-fourth of the new system’s 28 million members will be Californians.

“Whatever comes out of this needs to be in the interest of policyholders,” he said. “We have a fiduciary interest not to negatively impact our policyholders.”

Jerry Flanagan of the Foundation for Taxpayer and Consumer Rights has a similar criticism of Garamendi’s proposal.

“Simply requiring Anthem to pay $400 million is hush money to get the state to go away,” Flanagan said Tuesday. “What the state needs to require is that WellPoint refund its excess reserves to policyholders, and agree to freeze premiums for at least the next five years.”

The California Department of Managed Health Care, which oversees HMOs and PPOs, is expected to wind up its own review after a hearing Friday in Sacramento.

“We expect it will be a final public critique that potentially will help us identify anything we’ve missed,” said Kevin Donahue, the department’s senior counsel. “There’s been a perception that this was all done in secrecy, when, in fact, it was was a very solid, workman-like review. We decided to hold our hearing when we were ready.”
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