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Associated Press

Lawmakers promised few changes if health care merger goes through

by JIM WASSERMAN, Associated Press Writer
June 9, 2004

SACRAMENTO -- Anthem Inc. officials seeking a merger with WellPoint Health Networks Inc. told California lawmakers Wednesday that they won't cut jobs, raise premiums or make state residents pay for a promised executive compensation package.

They also promised not to abandon health coverage for low-income residents and said relationships between WellPoint - which owns Blue Cross of California - and its doctors and hospitals would change little.

"The company will continue to be run from California," Larry Glasscock, chief executive of Indiana-based Anthem, told legislators. "The number of jobs moving to Indianapolis will be absolutely minimal."

Last October, Anthem proposed a merger with Thousand Oaks-based WellPoint that, at 26 million members, would create the nation's largest provider of managed health care.

Lawmakers convened a special hearing Wednesday to air concerns that a proposed merger between the two health care giants might prompt job cuts and affect 7 million residents insured by Blue Cross of California. State regulators inside the Department of Managed Health Care and the state Department of Insurance could still potentially delay or stall the deal, which Anthem hopes to conclude June 28 with a vote by shareholders of both publicly traded companies.

Regulators from the U.S. Department of Justice have already approved the merger, as have 10 states - but California regulators must still agree to it.

Glasscock, who flew to Sacramento to reassure worried legislators, promised few noticeable changes for insurance coverage in California and few lost jobs among the 8,000 WellPoint employees in the state. He said most of the millions of residents insured by WellPoint's Blue Cross subsidiary would barely notice the merger.

The Legislature has no power to derail the merger, so several members Wednesday urged the Department of Managed Care and state Insurance Commissioner John Garamendi to hold more hearings. Garamendi, who described the deal as "not in the best interests of California," told lawmakers he was considering hearings.

Garamendi cited the takeover of Bank of America by North Carolina-based NationsBank as an example of his concerns that an out-of-state owner might cut back on philanthropy in California.

Glasscock also defended a multimillion dollar executive compensation package that's part of the deal and is provoking objections from critics who say it will eventually drive up premiums.

The compensation package could provide up to $356 million in severance payments to 293 WellPoint executives dislocated by the deal, though Glasscock suggested it would total much less. The merger would also provide the executives with $251 million in stock options.

"These excessive and obscene payouts to executives ultimately mean patients pay more, or business owners pay more," said Jerry Flanagan, health care policy director with the Santa Monica-based Foundation for Taxpayers and Consumer Rights.

Company officials said WellPoint's chief executive, Leonard Schaeffer, would be the merger's biggest beneficiary, receiving $76 million in severance and retirement payments.

Glasscock promised that Anthem would bear the costs of the compensation package.

"Premiums will not go up because of the transaction," he said.

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