Anthem Offers Assurances to State Regulators on Merger With WellPoint
Prior to a Department of Insurance public hearing scheduled Friday on a proposed $16.4 million merger between Indiana-based Anthem and California-based WellPoint Health Networks, Insurance Commissioner John Garamendi (D) released a 15-point document outlining compromises Anthem would make if granted regulatory approval for the merger, the Indianapolis Star reports (Swiatek, Indianapolis Star, 6/25). Anthem and WellPoint last October announced a deal that would combine both companies under the name WellPoint and establish headquarters in Indianapolis. The combined company would have $27.1 billion in assets, 40,000 employees and 26 million members in 13 states, including California. Speculation last month from several lawmakers and consumer advocacy groups that the Department of Managed Health Care would approve the agreement without a public hearing led Assembly Speaker Fabian Nunez (D-Los Angeles) to form a special committee to investigate the proposed merger. Department of Insurance officials scheduled a hearing for June 25, and DMHC officials Wednesday announced that they will hold a separate public hearing on the merger July 9. State law does not require a hearing, but the state previously has held public hearings on similar mergers.
The proposed merger requires approval from Anthem and WellPoint shareholders, as well as from regulators in the states where the combined company would operate. DMHC must also sign off on the deal because it issues the license for Blue Cross of California, the largest part of WellPoint's California business. The 10 other states with direct regulatory authority and the federal government have approved the merger (California Healthline, 6/24). According to the Star, California regulators' approval is "critical to the deal" because 25% of the merged company's members would be located in the state.
The regulatory draft document stipulates that WellPoint will not use Blue Cross of California assets to pay for merger-related bonuses and compensation packages to WellPoint executives. Such bonuses have been estimated at $147 million to $356 million, according to the Star. The document also contains an agreement to allow the Blue Cross unit for the next three years to maintain the same level of profits it currently keeps under WellPoint's ownership. According to the Star, Anthem also would agree to retain existing policies and contracts with WellPoint's California customers and not to transfer its debt to WellPoint's California business unless market conditions change.
WellPoint spokesperson Ken Ferber said the document "really gives teeth" to commitments made by the representatives for the two health insurers at a June 9 hearing. Duane Sobecki, senior partner at Focused Results, an Indianapolis consulting firm, said, "I'm guessing Anthem wouldn't go anywhere near this far" to make concessions to regulators in other states, the Star reports. According to the Star, California's negotiations with Anthem and WellPoint do not impact agreements in other states affected by the merger.
Jerry Flanagan of the Foundation for Taxpayer and Consumer Rights said state regulators could demand further concessions from Anthem before approving the merger. FTCR is asking regulators to prohibit the transfer of any of the $1.07 billion in reserves held by Blue Cross of California to Anthem. Garamendi spokesperson Norman Williams said the commissioner has "no hard timeline yet" for issuing a decision on the merger. Anthem and WellPoint executives say they hope to complete the merger by mid-year, the Star reports (Indianapolis Star, 6/25).This is part of the California Healthline Daily Edition, a summary of health policy coverage from major news organizations. Sign up for an email subscription.