Anthem sues Calif. insurance official over merger block

Robert Jablon

Wednesday, Aug. 4, 2004 | 9:56 a.m.

LOS ANGELES -- Anthem Inc. sued California's insurance commissioner Tuesday for blocking its proposed $16.4 billion merger with WellPoint Health Networks Inc., a deal that would create the nation's largest health insurer.

The suit, filed in Los Angeles County Superior Court, asks for a ruling that Anthem met all legal conditions for approval of the merger and to prevent Insurance Commissioner John Garamendi from blocking it.

"The commissioner is required to follow California law in making his decision and he failed to do that," David R. Frick, Anthem's chief legal officer, said in a statement.

"Filing this lawsuit is something we did not want to do," said Larry C. Glasscock, Anthem's chairman, president and chief executive. "However, we genuinely feel we have met all the legal requirements necessary for approval of the merger."

There was no immediate response from the Department of Insurance.

The companies had argued that the deal would benefit the 28 million Californians insured by Indiana-based Anthem and Thousand Oaks, Calif.-based WellPoint, parent of Blue Cross of California.

In Nevada the two companies insure more than 126,000 people, but the Nevada Division of Insurance did not have to approve the deal because neither company is based in Nevada.

The Nevada Division of Insurance said it is monitoring the situation to make sure neither company does not increase their costs and reduce their benefits.

The California insurance commissioner rejected the deal on July 23. Garamendi, who has oversight authority over about 4 percent of the deal, had said he could not "in good conscience" support the merger, charging that it would pull $400 million a year out of California for three years and an unlimited amount afterward to help Anthem finance the takeover. He also criticized a $76 million payout to WellPoint's chief executive, Leonard Schaeffer, who would lose his job.

Garamendi said that amount could provide a year's worth of insurance coverage for 47,000 children in a state where 6 million people lack health insurance.

Garamendi's decision was the last major hurdle in the process. The state's Department of Managed Health Care had approved the deal, along with the federal government and nearly a dozen other states and territories affected by it.

The companies argued it would strengthen their ability to compete in the crowded California marketplace and provide better services.

Anthem spokesman Ed West said the company had testified that it estimated the merger costs at only $300 million and had promised it would be paid through a combination of debt and cash on hand. No premiums would be raised, he said.

"No policyholder, physician or hospital will be expected to pay any of that," he said Tuesday.

WellPoint and Anthem said they agreed to numerous concessions for the change in ownership of Blue Cross of California, which insures 7 million Californians.

Among them, Blue Cross will invest $17 million in mental health and child obesity programs, up to $100 million over 20 years for health care in rural and underserved communities and $5 million over three years to increase enrollment in the state's Healthy Families Program.

WellPoint put a full-page ad supporting the merger in Tuesday's Los Angeles Times, arguing that the combination "will help those currently insured by containing costs, increasing available programs and making better medical information more widely available."

The U.S. Department of Justice, Puerto Rico and nine other affected states -- Delaware, Illinois, Georgia, Missouri, Oklahoma, Texas, Virginia, West Virginia and Wisconsin -- have approved the merger.

The stock prices of both fell Tuesday after the announcement. Anthem shares fell 94 cents to close at $81.36 on the New York Stock Exchange, where WellPoint shares fell 72 cents to close at $99.81.