Wellpoint Anthem Merger Approved

LOS ANGELES - The state's insurance commissioner gave his blessing Tuesday to a $16.4 billion merger that would create the nation's largest health insurance company after saying he had wrung hundreds of millions of dollars out of the companies involved that would be used to improve health care for all Californians.

Insurance Commissioner John Garamendi had blocked the proposed merger between Anthem and WellPoint California subsidiary Blue Cross Life & Health Insurance Co. for months, complaining that it would pull $400 million a year out of California in the form of dividends that would go to Indianapolis-based Anthem and that the buyout package it offered WellPoint's chief executive was excessive.

"Last week Anthem and WellPoint returned to my office and presented a revised offer of settlement. I demanded more and after long negotiations, Anthem has made additional concessions and contributions that will assure that California health care consumers will realize benefits from this transaction," Garamendi told reporters Tuesday morning.

"With these additional concessions and commitments by Anthem and WellPoint I am today announcing that I will approve Anthem's application and will allow a change in control of Blue Cross Life & Health Insurance Co.," Garamendi added.

Neither Anthem nor WellPoint officials were immediately available following the announcement. Spokesmen for each declined comment Monday evening after Garamendi said he would be making an announcement on the deal.

Anthem sued Garamendi in August for blocking the proposed merger. The lawsuit specifically sought to overturn his decision to reject Anthem's acquisition of Blue Cross Life & Health, one of 75 WellPoint subsidiaries involved in the deal - and the only one under Garamendi's jurisdiction.

After holding a series of public hearings, Garamendi rejected the deal July 23, saying it would reduce the quality of health care for policyholders. He also criticized the merger's executive compensation package, saying the payouts were excessive in a state where 6 million residents lack health insurance.

Both companies reported strong growth in income during the three months ending Sept. 30. Anthem reported $242.1 million in earnings compared with $196.5 million during the same quarter in 2003. WellPoint reported third quarter net income of $315.1 million compared to $246.2 million in the third quarter of 2003.

Garamendi said the deal he worked out this week assures that Blue Cross Life & Health policyholders will not see their premiums increased, adding that any proposed changes BCLH wants to make must be reviewed and approved by his office.

"With this commitment my department will be able to determine that premiums for BCLH products will not increase," Garamendi said.

The insurance commissioner said the companies have also agreed to contribute $35 million to provide health-care clinics in underserved California communities, $15 million to train nurses and to invest $200 million in health-care services to underserved communities.

The $15 million contribution should increase California's nursing ranks by 2,500, he said.

States and territories that earlier approved the merger include Puerto Rico, Delaware, Illinois, Georgia, Missouri, Oklahoma, Texas, Virginia, West Virginia and Wisconsin.

Shares of both companies surged on the news. Anthem rose $6.47, or 7.5 percent, to $92.97 on the New York Stock Exchange, where WellPoint shares gained $10.49, or 10 percent, to $115.46.