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San Jose Mercury News (California)

WellPoint deal wins OK from Garamendi;


by Margaret Steen; Mercury News
November 10, 2004

California Insurance Commissioner John Garamendi cleared the way Tuesday for the merger of two health insurance companies after they agreed to invest hundreds of millions of dollars in California. The deal would create the nation's largest health insurer, with 28 million members.

Indianapolis-based Anthem has been trying for more than a year to acquire WellPoint Health Networks, which is based in Thousand Oaks and operates Blue Cross of California. Garamendi had blocked the deal, saying it gave too much money to executives and did too little to improve health care.

Anthem officials said they are now updating regulators in other states about the California deal and gauging how long it will take to complete the merger. The deal's value has been estimated at $16.4 billion.

Garamendi called the agreement ''a significant improvement'' over the initial proposal. Among the concessions Garamendi received in exchange for his approval:

Customers of Blue Cross Life & Health, the subsidiary of WellPoint that Garamendi oversees, will not see their premiums increase to pay costs associated with the merger.

Anthem will provide $35 million to finance expansions or improvements to clinics in underserved areas of California.

Anthem will provide $15 million in scholarship and other assistance to train 2,500 new nurses in California in the next five years.

Anthem will allocate $200 million in its investment portfolio to projects in underserved communities in California. This commitment includes $100 million that had already been promised as part of earlier negotiations with the California Department of Managed Health Care, and the investment will take place over 20 years. If Anthem's payments to its executives are more than $265 million, it will add to this amount.

Anthem and the insurance department will develop a program to measure and improve the effectiveness of its programs for a range of diseases, including breast cancer, asthma and diabetes.

The deal brings near-closure to a story that began in October 2003, when Anthem proposed the merger. California lawmakers, concerned about a possible loss of jobs and affordable health care, held hearings on the merger in June. The companies got approval from federal and most of the necessary state regulators, including the state Department of Managed Health Care, which is part of Gov. Arnold Schwarzenegger's administration.

In July, Garamendi announced he would oppose the deal. Although he oversees only a small portion of Blue Cross' business in California, his opposition threatened the entire deal. Anthem sued Garamendi in August, saying he had overstepped his authority. The agreement announced Tuesday resolves the lawsuit.

Consumer groups praised Garamendi's efforts but said there was still cause for concern about the merger.

''This at least assists the goal of trying to make Blue Cross be better, not just bigger,'' said Anthony Wright, executive director of Health Access California.

Some worried that because most of Blue Cross' California customers are not under Garamendi's jurisdiction, those customers could end up footing the bill for the merger.

''I think Garamendi got a good deal for the patients that he was elected to protect,'' said Jerry Flanagan, health care policy director for the Foundation for Taxpayer and Consumer Rights in Santa Monica.

Ed West, vice president of corporate communications for Anthem, said the company has promised that none of its customers' premiums will be increased to pay for the merger. Some of the costs will be offset by the savings the merger creates; other costs will be absorbed into the regular cost of business, he said.

Anthem's stock closed up about 5.5 percent, at $91.23. WellPoint's stock closed up 8.5 percent, at $113.90.

Larry C. Glasscock, chief executive of Anthem, will be the chief executive of the new company, which will use the WellPoint name and be based in Indianapolis.
The New York Times contributed to this report.
Contact Margaret Steen at [email protected]