Department of Managed Health Care Approves WellPoint-Anthem Merger

The Department of Managed Health Care on Wednesday issued final regulations approving the proposed $16.4 billion merger of California-based WellPoint Health Networks and Indianapolis-based Anthem, the San Francisco Chronicle reports (San Francisco Chronicle, 11/26). The proposed merger, announced in October 2003, would combine the companies under the name WellPoint and establish headquarters in Indiana. The deal would create the largest U.S. health insurer, serving 28 million people in 10 states and Puerto Rico. Anthem Chair and CEO Larry Glasscock would be CEO of the new company, and WellPoint CEO Leonard Schaefer would be the chair. Anthem and WellPoint shareholders, as well as a number of entities with direct regulatory authority -- such as the Department of Justice, nine other states and Puerto Rico -- have approved the merger.

Insurance Commissioner John Garamendi (D), who in July had said he would not approve the deal, earlier this month announced that he would drop his opposition to the merger, after the companies offered a $265 million financial deal to the state. The California deal also includes an assurance that the company would increase its expenditures on patient care and not raise premiums for members in California to help pay for the merger. While analysts expect the merger to be approved by all regulators and possibly completed as soon as the end of November, the companies' agreement with California must now be reviewed by all the states (California Healthline, 11/12).

DMHC previously had approved the merger with a $100 million commitment. The regulations issued last week provide the same consumer protections to members of Blue Cross Life & Health, which Garamendi regulates, and Blue Cross of California, which accounts for 96% of WellPoint's business in the state. DMHC spokesperson Lynne Randolph said, "This will finalize the transaction for the two regulating entities. We needed to make sure everything was consistent for Blue Cross of California enrollees" (San Francisco Chronicle, 11/26).

It is "hard to see" Garamendi's negotiations with Anthem and WellPoint "as anything but a form of political extortion," in which the commissioner, who plans to run for California lieutenant governor in 2006, is "extracting a form of political tribute that he can claim credit for and that will enhance his own career ambitions," a Wall Street Journal editorial states. According to the editorial, insurance commissioners ought to weigh merger proposals "based on the business and regulatory merits." Garamendi's form of "political exploitation" provides regulators with advantages and "lets politicians off the hook for the consequences of their policy promises," the editorial states, adding that the commissioner acted like a "feudal highwayman -- pay up if you want to pass through Garamendi's gate."

The editorial states that as other state insurance commissioners reconsider their approvals of the WellPoint merger, the "price of paying off Mr. Garamendi is still rising." The editorial concludes, "Health care companies may not be popular with much of the public these days, but that shouldn't limit their right to transact business free of regulatory extortion" (Wall Street Journal, 11/29).