Los Angeles Times

Supremely ticked off by Insurance Commissioner John Garamendi‘s rejection of its takeover by Anthem Inc., WellPoint Health Networks Inc. has been running newspaper ads this week outlining all the deal-related benefits we stand to lose.

Under the headline “A Missed Opportunity for California,” the Thousand Oaks health insurance company calculated these benefits at “nearly a half a billion dollars.” The biggest chunk of the total, according to the parent of Blue Cross of California, is a 20-year program under which “as much as $450 million could be available for investments” to improve access to healthcare for the poor and disadvantaged.

The implication is that Garamendi, by gumming up the $17-billion acquisition, has deprived the state of a cash commitment on a major scale. For the insurance commissioner to kiss off such a grand sum — at a time when the ranks of the medically disadvantaged are expanding uncontrollably and state funds to arrest the trend are nonexistent — would be the height of irresponsibility.

Yet as an experienced reader of advertising copy, I was struck by WellPoint‘s curiously conditional description of that $450-million program. If nothing else, the wording appeared to violate the principle that any company about to lay out $450 million as a public benefaction should trumpet its intentions directly instead of pussyfooting around with terms such as “could be” and “as much as.”

So I took a closer look at the “Investment in a Healthy California Program,” which is what WellPoint called this financial commitment in a document it filed with the state Department of Managed Health Care.

The program, it turns out, is not quite what a casual reading of the company’s statements might suggest — that is, the expenditure of an otherwise unavailable $450 million in cash.

Under the terms of the program, WellPoint — or, more precisely, Blue Cross of California — proposes to reallocate $100 million out of its already existing $4-billion investment portfolio and aim it at ventures that provide benefits to medically underserved communities. The company assumes that such investments would mature in an average five to six years, at which point the money would be available to invest over again.

By thus calculating that the original stake would turn over four times in 20 years, and adding in a reasonable investment return, Blue Cross puffs up its $100-million ante into a putative $450 million that “could be available” over time.

Garamendi says he isn’t taken in by WellPoint‘s math. “They agreed to invest $100 million, once,” he told me, “and then to reinvest that same $100 million over and over again. As near as I can tell, that amounts to $100 million.” To call it $450 million, he says, is “Enron accounting,” which are fighting words here in California.

He observes further that, whatever the sum, it hardly makes up for the hundreds of millions of dollars in executive bonuses and debt payments he contends the acquisition would cost policyholders here and elsewhere.

It’s worth noting that placing this program within Blue Cross‘ investment portfolio necessarily constrains the kind of spending that its managers can undertake. Because the portfolio must be handled prudently on behalf of Blue Cross members, program investments must generate a competitive rate of return and meet conventional goals of safety and preservation of capital.
In other words, the program can’t do things like, say, make outright grants to community groups engaged in assisting the medically indigent, because such handouts wouldn’t produce an investment return.

The company says that still leaves room for what WellPoint General Counsel Thomas Geiser calls “good works that are also good investments,” and he’s certainly right.

During a recent conference call, he and other executives talked about helping to provide financing for services that might transport rural patients to distant specialists; for expansions of remote clinics; or for telecommunications technologies enabling doctors to diagnose isolated patients without physical contact. Potential providers of such services can’t easily raise money at economical rates, WellPoint says, so one of its options might involve finding ways to improve their credit standing.

But one wonders whether WellPoint, by dressing up this program for PR purposes into a near-half-billion-dollar initiative that Californians can scarcely live without, hasn’t unwittingly raised the bar on its own performance.

For one thing, if the program would be, as WellPoint contends, both laudable and profitable, why shouldn’t it happen regardless of the fate of the Anthem deal? Wouldn’t such a program fall under the “commitment to leadership, innovation and social responsibility” that WellPoint Chief Executive Leonard Schaeffer boasts is one of the company’s guiding principles?

When I put this to WellPoint executives, they suddenly seemed to backtrack. They agreed that the goals were worthy, but best pursued as part of an industrywide effort.

Lacking that, WellPoint would be willing to help the indigent in the way it has described largely because it would gain “synergies and benefits” from combining with Anthem. Yet without the Anthem deal, says WellPoint Chief Financial Officer David Colby, “I’m not sure it wouldn’t be putting us at a competitive disadvantage” to launch such a program.

In other words, WellPoint would love to go the extra mile for the community. As long as it’s on its own terms.
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Golden State appears every Monday and Thursday. You can reach Michael Hiltzik at [email protected] and read his previous columns at latimes.com/hiltzik