Garamendi Opposed to Anthem-WellPoint Merger
Insurance Commissioner John Garamendi (D) on Friday said that a proposed merger between Indiana-based Anthem and California-based WellPoint Health Networks "offered no benefit to Californians" and that he would oppose the merger unless Anthem agrees to invest an amount equal to severance packages scheduled for some WellPoint executives in health care programs for the state's low-income residents, the Los Angeles Times reports. Garamendi said the value of the executive packages could total $600 million if WellPoint executives' stock options were included, according to the Times (Gellene, Los Angeles Times, 6/26). Anthem CEO Larry Glasscock said cash compensation paid to departing WellPoint executives is not likely to exceed $200 million because he intends to retain 280 of WellPoint's 293 executives (Lau, Investor's Business Daily, 6/28). 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.
Garamendi cannot block the merger in its entirety, but he can deny Anthem's acquisition of the license for WellPoint subsidiary Blue Cross of California, which accounts for the largest share of the company's California business. 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 merger (California Healthline, 6/25). According to the Times, regulators' opposition to the merger has been centered on concerns that Anthem would use Blue Cross premiums paid by state residents to finance merger-related compensation packages for as many as 300 WellPoint executives at an estimated cost of between $147 million and $356 million. Garamendi also has cited concerns that Anthem could eliminate coverage for severely ill customers currently covered under Blue Cross programs, the Times reports.
Anthem representatives said that any enrollee who might lose coverage as a result of a program's termination would be accepted into another program "without regard to their health status," the Times reports. Glasscock said that Anthem would fund the merger in part through $250 million in annual savings that would transpire from the cost-saving benefits -- such as consolidating headquarters staff -- of combining the companies. Anthem officials also said the company would impose "certain solvency and liquidity requirements" on Blue Cross that would restrict the subsidiary's ability to distribute cash to Anthem, according to the Times. However, the restrictions are "far less stringent" than those WellPoint current uses, according to the Times. In response to Garamendi's threat to oppose the merger, WellPoint General Counsel Thomas Geiser said the company has been in discussions with state insurance regulators about possibly investing in health services for low-income residents. He said the company is considering funding clinics operated by not-for-profit organizations or by government agencies, according to the Times.
Company shareholders are scheduled to vote on the merger Monday. Treasurer Phil Angelides (D) said that public pension funds controlling about $530 million of WellPoint and Anthem stock plan to withhold their votes, the Times reports. The Department of Managed Health Care, which has not approved the merger, will hold a hearing on the matter July 9 (Los Angeles Times, 6/28).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.