NU Online News Service, June 11, 2004, 6:08 p.m. EDT – California Insurance Commissioner John Garamendi has asked California lawmakers for more legislative authority to review a huge managed care acquisition.[@@]

Anthem Inc., Indianapolis, one of the biggest U.S. managed care companies, is trying to acquire an even bigger competitor, WellPoint Health Networks Inc., Thousand Oaks, Calif. The companies say they need to make the deal to cut their operating costs. They also have suggested that Anthem is acquiring WellPoint, the parent of Blue Cross of California, to help reduce WellPoint’s exposure to California’s challenging regulatory environment.

Garamendi says he wants to know more about the acquisition.

Current laws may not give the California Department of Insurance enough ability to get answers to its questions about the possible effects of the deal on California consumers, Garamendi testified Thursday at a hearing of the state Senate Insurance Committee, according to a written version of his remarks.

“The number of uninsured in California is nearly 6 million and growing,” Garamendi said. “At the same time, our state fiscal crisis may force further cuts in our already overburdened safety net programs.”

Now, the Anthem-WellPoint deal seems likely to reshape the California health insurance market while resulting in “extraordinary financial benefits for a handful of managers and directors,” Garamendi charged.

Garamendi noted that his department splits oversight with the California Department of Managed Health Care and that his only statutory authority over the deal comes from his ability to regulate Anthem’s proposed acquisition of WellPoint’s Blue Cross Life and Health Insurance Company unit.

At this point, California insurance regulators aren’t sure what the California managed care department has learned or what arrangements it has negotiated, Garamendi said.

But Garamendi argued that, from his standpoint, Anthem’s plans for California are “not transparent.”

Anthem could shift the entire California market, which depends on heavily regulated health maintenance organizations, toward more lightly regulated preferred provider organization plans that offer inferior benefit packages, Garamendi said.

Garamendi also complained about uncertainty about the fate of WellPoint’s $1 billion in excess surplus and rumors about a $500 million compensation package for top WellPoint managers and directors.

“The company and its executives should be required to publicly clarify the exact amount of these bonuses and stock options,” Garamendi said.

California insurance and managed care regulators now have no legal ability to control executive compensation or rates, Garamendi said.

Other Garamendi questions:

- What will happen to control of 2 nonprofit foundations formed with California Blue’s charitable assets when California Blue created WellPoint by converting to for-profit status?

- Could Anthem-WellPoint end up outsourcing jobs away from California and shipping sensitive medical records to other countries?

- Would Anthem participate in state programs aimed at low-income and moderate-income California residents as enthusiastically as WellPoint now does?

- When the deal was completed, would the combined company be required to provide automatic transfer rights between the company’s products, without underwriting and regardless of the patients’ health status?