By

The Kansas Supreme Court has sided with Kansas insurance regulators and blocked an effort by Anthem Inc., Indianapolis, to acquire Blue Cross and Blue Shield of Kansas, Topeka, Kan.

The states high court agreed with Kathleen Sebelius, the former insurance commissioner, that Anthem could end up imposing cumulative rate increases that would be at least 6 percentage points higher by 2005 than the cumulative increase Kansas Blue would impose if it continued to operate as a stand-alone company.

Kansas Blue has been paying out about 2% more on claims than it has been collecting in revenue.

Kansas regulators presented credible reports from consultants that Anthem would want to increase rates enough to establish an underwriting margin of about 2% to 3%, the court said in an opinion discussing its ruling.

“The Insurance Commissioners findings regarding the likelihood of harm resulting from anticipated post-acquisition surplus reductions and premium rate increases were not speculative and thereby did not render her act of disapproving the change of control transaction arbitrary and capricious,” the court wrote in the opinion.

The court also said the commissioners belief that Anthem would reduce Kansas Blues surplus to $155 million, from $286 million, was reasonable.

The court noted that, because state law requires it to give great deference to the commissioners findings, it has an obligation only to review the evidence that supports those findings and not evidence contrary to them.

The courts decision overturns a lower court ruling that supported efforts by Anthem and Kansas Blue to complete their deal.

“Obviously, we are disappointed by the courts ruling,” Anthem Chairman Larry Glasscock said in a statement. “We feel strongly that the transaction would have been good for both companies and for the people of Kansas.”

Anthem will continue with efforts to grow through acquisitions and internal growth, the company said.

The Kansas Supreme Court has posted the opinion concerning the case, Blue Cross and Blue Shield of Kansas Inc. vs. Sandy Praeger, at http://www.kscourts.org/kscases/supct/2003/20030806/89075.htm.


Reproduced from National Underwriter Life & Health/Financial Services Edition, August 11, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.