Only California stands between Anthem, WellPoint joining forces

State regulators mull the effects of the mammoth merger, scrutinizing executive severance and patient care.

By Robert Kazel — Posted July 19, 2004

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The merger between Anthem Inc. and WellPoint Health Networks has received the overwhelming approval of its shareholders, but the consummation of the union was delayed by challenges from California regulatory officials over whether the deal would be fair to plan members in the state.

About 97% of Anthem shareholders voted to issue stock to Thousand Oaks, Calif.-based WellPoint's shareholders and change the name of the insurer to WellPoint.

The newly merged company would be based in Indianapolis, where Anthem is headquartered, and would be the nation's biggest for-profit managed care company with 26 million members.

Approximately 97% of WellPoint shareholders also cast ballots to approve the $16.5 billion merger. Executives of both companies announced the deal in October and had expected it to be completed this summer.

The merger has received the approvals of federal authorities and the 12 state insurance departments that were necessary for the deal, but it hit a snag in California when Insurance Commissioner John Garamendi expressed doubts about how the deal would be financed, and whether WellPoint's cash reserves would be taken out of the state to help pay for it. His agency has been holding public hearings into the proposed merger over the past several weeks.

Garamendi has said he is also concerned that patient benefits would decrease, or premiums increase, once the merger was complete.

The cooperation of California regulators is key to the merger because Anthem would be purchasing Blue Cross Life & Health Insurance Co., a WellPoint company, as part of the deal.

Seven million patients are enrolled in that plan, or half of WellPoint's subscribers. Garamendi could disapprove that part of the merger and thereby throw the entire transaction into question.

Much of the skepticism expressed by critics of the deal in California has centered around an estimated $150 million to $360 million in cash severance payments that the insurance companies would pay departing WellPoint executives.

The California Dept. of Managed Care, which also must approve certain aspects of the merger, was to hold its own hearing July 9 focusing on the deal's potential effect on health care quality and access to care.

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