California backs Anthem-WellPoint merger, but hurdle remains

The state insurance commissioner's approval avoids potentially protracted litigation. But the deal has yet to win approval in Georgia.

By Robert Kazel, AMNews staff. Dec. 6, 2004.

Its merger deal with WellPoint Health Networks stalled in court, Anthem opened its wallet wider and won a California regulator's approval by showering a variety of state health programs with at least $265 million in pledged contributions.

California Insurance Commissioner John Garamendi in November announced that he had dropped his opposition to the Anthem-WellPoint merger, which would create the largest private-pay health plan in the United States as measured by number of members. Anthem said it would drop its lawsuit against Garamendi, filed after he turned down the merger in July.

At press time, Anthem needed the approval of one more state regulator, in Georgia, to close its merger, which would create a company called WellPoint based in Anthem's hometown of Indianapolis.

One reason Garamendi had turned down the Anthem-WellPoint merger was his distaste for bonuses, estimated at $265 million, that would be paid to company executives once the merger closed. That's why Anthem promised $265 million to health programs in California.

The company also promised to increase its pledge to match the exact amount of executive bonuses if they grew larger than $265 million.

Anthem previously had offered state officials more than $100 million in investments in health programs to sweeten its proposal. The current pledge includes Anthem spending $200 million over 20 years for patients in medically underserved communities in California. Anthem also agreed to spend $35 million for expansion or improvement of health clinics in disadvantaged areas. In addition, Anthem would double its current expenditures on quality measurement and improvement programs, including wellness initiatives, disease management and physician incentive plans, for WellPoint's California subsidiary, Blue Cross Life & Health Insurance. That would amount to a minimum outlay of $25 million, Garamendi said. Money also would be used for grants to colleges for nursing education, Anthem spokesman Jim Kappel said.