Garamendi Files Motion To Request Dismissal of Anthem Lawsuit Over His Decision To Block Part of WellPoint Merger
California Insurance Commissioner John Garamendi (D) on Wednesday filed a motion to dismiss a lawsuit from Indianapolis-based Anthem that claims the commissioner exceeded his regulatory authority with his decision to block part of a proposed $16.5 billion merger with Thousand Oaks-based WellPoint Health Networks, Bloomberg /Los Angeles Times reports (Bloomberg/Los Angeles Times, 8/26).
Anthem earlier this month filed suit against Garamendi in Los Angeles Superior Court on the grounds that his decision was "based upon his personal beliefs about public health care policy and executive compensation -- grounds for disapproval which do not exist under the California Insurance Code." Garamendi in July rejected part of the proposed merger after Department of Managed Health Care Director Cindy Ehnes announced her approval of the agreement.
The proposed merger, announced last October, would combine the 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.
Garamendi does not have the authority to block the merger, but he can deny a request by Anthem to acquire the license of Blue Cross of California, which represents the largest part of WellPoint operations in California. He has regulatory authority over Blue Cross Life & Health, a subsidiary of Blue Cross of California that offers life insurance and preferred provider organization plans and accounts for about 10% of WellPoint operations in California. The 10 other states with direct regulatory authority, the federal government and WellPoint and Anthem shareholders have approved the proposed merger.
Garamendi said that Anthem would use as much as $400 million annually in health insurance premiums paid by California residents to finance the proposed merger in the first three years and an unlimited amount after that time. In addition, Garamendi criticized the amount of compensation packages for WellPoint executives under the proposed merger. The Anthem lawsuit asks the court to affirm the legality of the proposed merger and prohibit future attempts by Garamendi to block the agreement (California Healthline, 8/4).
In his motion, Garamendi said, "The commissioner's function is not to rubber-stamp transactions that meet minimal financial reserve or surplus requirements. Instead, he serves to broadly protect insurance policyholders from deals that are not fair and reasonable and that may prejudice them, in whatever form that prejudice or unfairness exists."
Jim Kappel, an Anthem spokesperson, said that the company hopes to resolve the case "quickly through the court system." Judge Dzintra Janavs will hold a hearing on the motion Oct. 5 (Bloomberg/Los Angeles Times, 8/26).