Garamendi Raises Concerns Over Anthem-WellPoint Merger, May Not Approve

CAL/AAEM News Service calaaem_news at yahoo.com
Thu Jun 17 16:29:41 PDT 2004


Garamendi Raises Concerns Over Anthem-WellPoint Merger, May Not Approve
 
June 10, 2004 
  

Insurance Commissioner John Garamendi (D) on Wednesday at a hearing before a joint
Assembly and Senate committee said that a proposed $15.5 billion merger between
Indiana-based Anthem and California-based WellPoint Health Networks "is not in the best
interest" of the state and indicated that he might not approve the agreement, the Los
Angeles Times reports (Salladay, Los Angeles Times, 6/10). Under the proposed merger,
announced last October, the combined company would use the name WellPoint and have a
headquarters in Indianapolis. The combined company would have $27.1 billion in assets,
40,000 employees and 26 million members in 13 states. WellPoint currently provides health
insurance for seven million California residents through subsidiary Blue Cross of
California. Assembly Speaker Fabian Nunez (D) last month formed a special committee to
investigate the proposed merger in response to concerns raised by several lawmakers and
consumer advocacy groups that the Department of Managed Health Care would approve the
agreement without a public hearing. Although the state has held public hearings on
similar mergers in the past, state law does not require a hearing. DMHC officials said
that the proposed merger between Anthem and WellPoint is different from previous mergers
because the agreement would not limit consumer choice or competition as Blue Cross of
California would continue to operate. The proposed merger requires approval from Anthem
and WellPoint shareholders, as well as from regulators in the states where the combined
company would operate. Nine affected states, as well as the federal government, have
approved the proposed merger (California Healthline, 6/9). Garamendi does not have the
authority to block the proposed merger, but he could deny a request by Anthem to purchase
Blue Cross of California, a move that "could complicate the deal," the Times reports (Los
Angeles Times, 6/10). 

 
Several Concerns

Garamendi testified at the hearing that the proposed merger has "no identifiable benefits
and creates potential risks for California" (Swiatek, Indianapolis Star, 6/10). He raised
concerns that the combined company could "weed out severely ill customers, bleed Blue
Cross of about $1 billion in assets and damage the bottom line" with compensation
packages for company executives, the Times reports (Los Angeles Times, 6/10). According
to a document filed with DMHC, if the combined company retains all 293 WellPoint
executives after the completion of the proposed merger, they would receive a combined
$147 million in bonuses, and if all the executives are dismissed within three years, they
would receive a combined $356 million in severance payments (California Healthline, 6/9).
State regulators testified that the compensation packages could "push Blue Cross over
regulatory lines" in relation to administrative expenses, the San Francisco Chronicle
reports. However, WellPoint spokesperson Ken Ferber said that Anthem would cover the cost
of the compensation packages and that they would have no effect on operations in
California. State regulators also raised concerns about the effect that the combined
company would have on consumers (Colliver, San Francisco Chronicle, 6/10). Anthem CEO and
Chair Larry Glasscock, who testified at the hearing, said, "The benefits and services
Blue Cross of California customers will have the day after the merger will be the same as
the day before" (Los Angeles Times, 6/10). Testimony at the hearing indicated that
California may not make a decision on whether to approve the proposed merger before July
1, the earliest date planned for completion of the agreement. Anthem and WellPoint
shareholders plan to vote on the proposed merger on June 28, but they may delay the votes
in the event that California has not approved the agreement (Indianapolis Star, 6/10).  


Source: California healthline (http://www.californiahealthline.org/)


=====
Cyrus Shahpar & Brian Potts 
Managing Editors, CAL/AAEM News Service 
UC-Irvine



		
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