Garamendi Raises Concerns Over Anthem-WellPoint Merger, May Not Approve
Insurance Commissioner John Garamendi (D) on Wednesday at a hearing before a joint Assembly and Senate committee said that a proposed $15.5 billion merger between Indiana-based Anthem and California-based WellPoint Health Networks "is not in the best interest" of the state and indicated that he might not approve the agreement, the Los Angeles Times reports (Salladay, Los Angeles Times, 6/10). Under the proposed merger, announced last October, the combined company would use the name WellPoint and have a headquarters in Indianapolis. The combined company would have $27.1 billion in assets, 40,000 employees and 26 million members in 13 states. WellPoint currently provides health insurance for seven million California residents through subsidiary Blue Cross of California. Assembly Speaker Fabian Nunez (D) 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. Although the state has held public hearings on similar mergers in the past, state law does not require a hearing. DMHC officials said that the proposed merger between Anthem and WellPoint is different from previous mergers because the agreement would not limit consumer choice or competition as Blue Cross of California would continue to operate. The proposed merger requires approval from Anthem and WellPoint shareholders, as well as from regulators in the states where the combined company would operate. Nine affected states, as well as the federal government, have approved the proposed merger (California Healthline, 6/9). Garamendi does not have the authority to block the proposed merger, but he could deny a request by Anthem to purchase Blue Cross of California, a move that "could complicate the deal," the Times reports (Los Angeles Times, 6/10).
Garamendi testified at the hearing that the proposed merger has "no identifiable benefits and creates potential risks for California" (Swiatek, Indianapolis Star, 6/10). He raised concerns that the combined company could "weed out severely ill customers, bleed Blue Cross of about $1 billion in assets and damage the bottom line" with compensation packages for company executives, the Times reports (Los Angeles Times, 6/10). According to a document filed with DMHC, if the combined company retains all 293 WellPoint executives after the completion of the proposed merger, they would receive a combined $147 million in bonuses, and if all the executives are dismissed within three years, they would receive a combined $356 million in severance payments (California Healthline, 6/9). State regulators testified that the compensation packages could "push Blue Cross over regulatory lines" in relation to administrative expenses, the San Francisco Chronicle reports. However, WellPoint spokesperson Ken Ferber said that Anthem would cover the cost of the compensation packages and that they would have no effect on operations in California. State regulators also raised concerns about the effect that the combined company would have on consumers (Colliver, San Francisco Chronicle, 6/10). Anthem CEO and Chair Larry Glasscock, who testified at the hearing, said, "The benefits and services Blue Cross of California customers will have the day after the merger will be the same as the day before" (Los Angeles Times, 6/10). Testimony at the hearing indicated that California may not make a decision on whether to approve the proposed merger before July 1, the earliest date planned for completion of the agreement. Anthem and WellPoint shareholders plan to vote on the proposed merger on June 28, but they may delay the votes in the event that California has not approved the agreement (Indianapolis Star, 6/10).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.