Tuesday, June 29, 2004 | 11:12 a.m.
LOS ANGELES -- California's insurance commissioner grilled executives from Anthem Inc. and WellPoint Health Networks Inc. last week, saying plans to create the nation's largest health maintenance organization appear to benefit executives and stockholders over patients.
Commissioner John Garamendi railed against the nearly $600 million that could be paid to executives under the proposed deal and said he would not give his approval until the companies agreed to a similar-sized investment to help the poor.
"If you want my approval, you'd better deal with this one," Garamendi said Friday at a public hearing on the proposed merger. "This merger is not in the best interests of consumers as presented."
Garamendi and the state's Department of Managed Health Care must approve the $16.5 billion deal, which would create the nation's largest health maintenance organization.
Shareholders of the two companies meet Monday to approve the deal. Every other state required to examine the proposal has said OK. The state Department of Managed Health Care will hold another public hearing July 9 in Sacramento.
The merger does not require the approval of the Nevada Division of Insurance, but state regulators say they are monitoring the deal to make sure it doesn't hurt Nevada's consumers, Nevada Division of Insurance spokeswoman Peggy Dehl said.
"One of the things we would be concerned about is whether the consumers here in Nevada would receive the same focus without any deviation in benefits or increased cost (to) the insured," Dehl said.
WellPoint has no Nevada offices, but has 54,000 members in the state. Anthem insures more than 72,700 Nevadans.
Representatives of Thousand Oaks-based WellPoint, which owns Blue Cross of California, and Indianapolis-based Anthem said they understood Garamendi's concerns and would work to resolve them.
"At the end of the day, we understand where you are coming from," said Larry Glasscock, Anthem's chairman and chief executive.
A handful of people testified during the sparsely attended hearing, including Dave Parker, a 64-year-old resident of Orange, who said he has seen his Blue Cross of California premiums rise from about $600 to more than $900 since he lost his job several years ago.
"It's an outrage," Parker said. "I am waiting for Arnold Schwarzenegger, who I voted for, to do something about it."
Under terms of the deal, WellPoint shareholders would receive one share of Anthem stock plus $23.80 in cash per share, for a total cost of $16.5 billion.
Glasscock said none of the $4 billion in cash needed to finance the transaction would come from California ratepayers, a promise that was met with considerable skepticism from Garamendi.
"I want to assure you premiums will not be raised as a result of this merger," Glasscock said.
Brent Lamb, president of Calnet, a nonprofit network of mental health groups, said he supported the merger, including the controversial severance payments that include more than $70 million for outgoing Wellpoint Chairman and Chief Executive Officer Leonard Schaeffer.
Lamb said Blue Cross was disorganized and inefficient before Schaeffer brought in a new management team in 1986.
"Don't forget these are the people who saved Blue Cross for Californians," he said.
Representatives of multistate public and labor pension funds announced they would collectively vote their $530 million investments in the two firms against a merger. Officials from California, New York, Illinois, Iowa and Maine cited the merger's "egregious compensation plan" for their opposition.
"This package really is the poster child in many respects for excessive compensation," said California Treasurer Phil Angelides.
Angelides and other state treasurers have long criticized American corporate salaries as excessive and played major roles in the September 2003 resignation of former New York Stock Exchange Chairman Richard Grasso over his $187 million pay package.
"We find it immoral that they can get so greedy when working families everywhere are struggling to finance their health care," said Rob Feckner, investment chairman for the $160 billion California Public Employees Retirement System. The pension fund owns more than 1.3 million shares in the two companies valued at $250 million.
"This is obscene. It's undeserved," Feckner said. "This merger should not be allowed."
Friday, the California State Teachers Retirement System also announced it would vote 1.1 million shares valued at $113 million against the merger.
Iowa Treasurer Michael Fitzgerald called the executive pay package "an outrageous ransacking of the value of these two companies."
"These are companies we own. There are families saving for their kids' college educations and individual Iowans that own shares of these companies," Fitzgerald said. "They're tired of having their nest egg, their investment, looted."
Other opposition shareholders include the New York Common Retirement Fund, New York Teachers Retirement System, Amalgamated Bank, Los Angeles County Employees' Retirement Association, Illinois State Board of Investment, American Federation of Labor -- Congress of Industrial Organizations (AFL-CIO) and the American Federation of State, County and Municipal Employees (AFSCME) Pension Fund, Angelides said.
The Las Vegas Sun
contributed to this report.
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