State To Hold Public Hearing on WellPoint-Anthem Merger

Officials from the Department of Managed Health Care on Wednesday announced that they will hold a public hearing July 9 on a proposed merger between Indiana-based Anthem and California-based WellPoint Health Networks, despite speculation last month that regulators would approve the deal without hearing testimony, the Los Angeles Times reports. DMHC must sign off on the deal because it issues the license for Blue Cross of California, the largest part of WellPoint's California business. (Lifsher, Los Angeles Times, 6/24). 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 DMHC 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 (California Healthline, 6/15). Department of Insurance officials have scheduled for Friday a separate hearing on the merger (Los Angeles Times, 6/24).

Patients' rights groups, officials from the California Public Employees' Retirement System and Insurance Commissioner John Garamendi (D) in recent weeks have raised concerns that the combined company could end coverage of severely ill customers and damage Blue Cross of California's finances by providing some company executives with large compensation packages. A document filed June 8 with DMHC by Anthem showed that WellPoint executives would be eligible for a combined $147 million to $356 million in bonuses or severance payments after the merger is completed. WellPoint executives would receive a combined $147 million in bonuses if the company retains all 293 executives, and if all executives are dismissed within three years, they would receive a combined $356 million in severance payments. In response to concerns, WellPoint spokesperson Ken Ferber said that Anthem would cover the cost of the compensation packages, which according to Ferber would have no effect on operations in California. Anthem and WellPoint shareholders plan to vote on the proposed merger June 28 (California Healthline, 6/10).

DMHC attorney Kevin Donohue said, "We never said we weren't going to hold a public hearing. We said we wanted time to evaluate all the issues." He added, "We've done a deliberative review and now concluded that a public meeting is needed." Ferber said that WellPoint "looks forward to this hearing as the final step in a comprehensive and thorough approval process." Jerry Flanagan of the Foundation for Taxpayer and Consumer Rights said the decision to hold a hearing on the merger is "good news for patients." He added that the decision indicated that regulators responded to public pressure, according to the Times (Los Angeles Times, 6/24).

The WellPoint-Anthem merger represents "the kind of greedy excess that sets an industry's reputation back a decade," a Sacramento Bee editorial states, adding that "perhaps more than a half-billion dollars" of the deal "is extra money for top management." According to the editorial, that money will "come out of the hides of shareholders, or companies that purchase Anthem health insurance, or hospitals that contract with Anthem, or staff or patients." The Bee concludes that Gov. Arnold Schwarzenegger (R) "must insist that these golden parachutes be trimmed way back before this merger goes through" (Sacramento Bee, 6/24).