California an Obstacle in Anthem-WellPoint Merger

The Indianapolis Star on Monday examined challenges -- including hearings by California regulators and legislators -- facing Indianapolis-based Anthem officials as they attempt to gain approval for a proposed $16.4 billion merger with Thousand Oaks-based WellPoint Health Networks (Swiatek, Indianapolis Star, 6/21). The merger, announced last October, would combine the companies under the name WellPoint and create 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. Assembly Speaker Fabian Nunez (D-Los Angeles) 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. State law does not require a hearing, although 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. The 10 other states with direct regulatory authority and the federal government have approved the proposal. CalPERS, which holds stock in the insurers, on June 14 said it would oppose the proposed merger because of concerns over proposed executive compensation packages totaling more than $600 million (California Healthline, 6/15).

According to the Star, California is a "raucous and unsettled market where one in five residents is uninsured, doctors and hospitals openly spar with health plans and insurance regulations are fine-tuned and pervasive." DMHC also is one of the only insurance regulators in the nation with a separate division for regulating HMOs. In addition, Anthem will have to answer to "consumer-driven changes in the health care market" such as decreased popularity of HMOs and a statewide trend to pay doctors for quality of care that could "fundamentally change the way health care payments are made," the Star reports.

Although the state offers "more challenges than any [Anthem] has tackled before," the Star reports that "much is at stake" for Anthem which, upon approval, would "find itself a major player in a market characterized by big players" such as Oakland-based HMO Kaiser Permanente. According to the Star, Kaiser has more managed care enrollees than WellPoint, but WellPoint offers "more of what Kaiser doesn't" -- customized plans for large employers and a larger scope of doctors and hospitals from which to choose (Indianapolis Star, 6/21).

Despite some speculation that a June 28 shareholder vote on the proposed merger is "expected to intensify" regulatory opposition, the "outline of a deal that could secure California regulators' blessing for the buyout is taking shape behind the scenes," the Los Angeles Times reports. Anthem and WellPoint have been "quietly attempting" to strike a deal that would alleviate regulators' concerns about the merger's effect on consumers. Summaries of some possible agreements are provided below.

• WellPoint has proposed placing limits on the license of the Blue Cross of California subsidiary that would require Blue Cross to serve Medi-Cal beneficiaries and other programs for low-income people.
  
  
• Anthem CEO Larry Glasscock has promised that money from Blue Cross reserves would not be used to fund controversial executive compensation bonuses or any other costs associated with the buyout.
  
  
• Anthem officials also have said the company will reserve 0.5 times the amount state law requires the HMO to have available to pay claims.
  
  
• According to Gary Cohen, chief lawyer for the Department of Insurance, some negotiators have presented the idea of Anthem establishing a fund to provide health care to low-income and uninsured residents, the Times reports (Girion, Los Angeles Times, 6/19).