LOS ANGELES – California’s insurance commissioner grilled executives from Anthem Inc. and WellPoint Health Networks Inc. Friday, saying plans to create the nation’s largest health maintenance organization appear to benefit executives and stockholders over patients.
Of particular concern, said Insurance Commissioner John Garamendi, was how the two companies would finance the $4 billion needed to complete their proposed $16.5 billion merger.
“My question is, who is paying for this merger? And who is benefiting from this merger?” Garamendi asked during a public hearing. “My concern is that premium payers across the nation are paying $4 billion for no benefit.”
Members of the public were expected to weigh in on the deal later in the day.
A merger between Thousand Oaks-based WellPoint, which owns Blue Cross of California, and Indianapolis-based Anthem would create a health management organization with 26 million patients, the nation’s largest.
Under terms of the deal, WellPoint shareholders would receive one share of Anthem stock plus $23.80 in cash per share, for a total cost of $16.5 billion.
Anthem chairman and chief executive Larry Glasscock said none of the $4 billion in cash needed to finance the transaction would come from California ratepayers, a promise that was met with considerable skepticism from Garamendi.
The commissioner said his concern was that the new company would have to increase premiums or reduce benefits for health and life insurance to generate the funds needed to pay for the merger.
“I want to assure you premiums will not be raised as a result of this merger,” Glasscock said.
Before the hearing began, members of several consumer groups gathered around a roasted pig to protest the proposed merger. The Foundation for Taxpayer and Consumer Rights has said it objects to plans to pay large severance packages to some executives as part of the merger.
“This deal is not kosher,” said Jerry Flanagan, a foundation spokesman.
California’s two insurance regulatory agencies have not yet approved the merger. Stockholders are set to vote on the proposal on Monday.
Representatives of multistate public and labor pension funds announced they would collectively vote their $400 million investments in the two firms against a merger. Officials from California, New York, Illinois, Iowa and Maine cited the merger’s “egregious compensation plan” for their opposition.
“This package really is the poster child in many respects for excessive compensation,” said California Treasurer Phil Angelides.
Noting the firms defend the package as an industry standard, he said, “That’s what’s wrong with the executive compensation system. It is the whole system that’s gone awry.”
Angelides and other state treasurers have long criticized American corporate salaries as excessive and played major roles in the September 2003 resignation of former New York Stock Exchange Chairman Richard Grasso over his $187 million pay package.
“We find it immoral that they can get so greedy when working families everywhere are struggling to finance their health care,” said Rob Feckner, investment chairman for the $160 billion California Public Employees Retirement System. The pension fund owns more than 1.3 million shares in the two companies valued at $250 million.
“This is obscene. It’s undeserved,” Feckner said. “This merger should not be allowed.”
Iowa Treasurer Michael Fitzgerald called the executive pay package “an outrageous ransacking of the value of these two companies.
“These are companies we own. There are families saving for their kids’ college educations and individual Iowans that own shares of these companies,” Fitzgerald said. “They’re tired of having their nest egg, their investment, looted.”
Other opposition shareholders include the New York Common Retirement Fund, New York Teachers Retirement System, Amalgamated Bank, Los Angeles County Employees’ Retirement Association, Illinois State Board of Investment, American Federation of Labor – Congress of Industrial Organizations (AFL-CIO) and the American Federation of State, County and Municipal Employees (AFSCME) Pension Fund, Angelides said.