ANTHEM RATE HIKES VIOLATE SPIRIT OF MERGER PACT

CALIFORNIA FOCUS
FOR RELEASE: TUESDAY, APRIL 27, 2010, OR THEREAFTER

BY THOMAS D. ELIAS
“ANTHEM RATE HIKES VIOLATE SPIRIT OF MERGER PACT”

Nobody at Anthem Blue Cross, the firm that’s now a poster boy for out-of-control health insurance premiums, likes remembering the company’s days of high anxiety back in 2004, when California’s then-Insurance Commissioner John Garamendi was holding up its $18 billion deal to take over Thousand Oaks-based WellPoint and its California Blue Cross subsidiary.

But those not-so-good old corporate days are again extremely pertinent for Blue Cross customers, as the firm considers raising rates by about 39 percent as soon as next month for 800,000 individual policies and by almost as much for groups.

Garamendi, who went on to become lieutenant governor and now is a Democratic congressman from an East Bay district near San Francisco, managed to delay this takeover almost a year while he haggled with Anthem, headquartered in Indianapolis.

This wasn’t about the shift of yet another corporate headquarters away from California. It was all about money.

Garamendi knew there was nothing he could do about the loss of hundreds of California jobs that was sure to follow the takeover (it did), as Anthem cut out “redundant” workers at all levels in its newly combined operation. A frequent resister of insurance rate increases, he at least wanted at least to make sure Anthem didn’t pass along the inflated price it paid for WellPoint to Blue Cross customers.

So he refused for months to sign off on the merger, a form of passive resistance that threatened to hold up the entire deal, which also involved WellPoint insurance subsidiaries in other states.

Anthem eventually sued, questioning Garamendi’s right to hold up the deal. Gov. Arnold Schwarzenegger applied pressure for the deal and the job losses to go through and Garamendi eventually backed off somewhat. But in the process, he achieved some things for California consumers: Anthem formally agreed to forego any rate increases for Blue Cross customers to cover its merger expenses, which increased more than $2 billion during the delay as WellPoint shares rose from $91 to $113 between the day the deal was announced and the day it went through.

The company also promised to invest $200 million over 10 years in under-served communities through California’s Healthy Families program, plus another $15 million on children’s insurance programs and $50 million for training nurses and operating clinics in California.

It wasn’t as good as keeping California Blue Cross a California company, but at least it was something.

“Was” appears likely now to be the operative word. For there is no way the cost of medical tests, doctor and hospital fees and medical supplies has risen 39 percent in one year, a claim made by Anthem executives while testifying before Congress and state legislative committees.

Nope, it’s now clear that even if Anthem doesn’t admit it, a good part of its rate increase would go to replenish corporate cash spent on the WellPoint takeover.

It’s been just over five years since that deal was completed, with Anthem adopting the WellPoint name for its parent company, much as North Carolina-based NationsBank renamed itself Bank of America after taking over the B of A. The Anthem tag was then hung on California Blue Cross.

That’s enough time so the corporation can conveniently maintain it has lived up to its written commitment not to make customers pay for its high-priced acquisition – while in reality making them do that.

For certain, the huge price increases Anthem may now assess violate the spirit of its agreement with Garamendi, even if they might not violate the letter of that deal.

Anyone who takes Anthem at its word in this is naïve, for this is the same company that committed more than 700 violations of state rules between 2006 and 2009, according to Garamendi’s Republican successor, Steve Poizner, now running a conservative campaign for his party’s nomination for governor.

The alleged violations, Poizner said, ranged from misleading consumers and failing to pay claims on time to lowballing claim payments and ignoring inquiries from state regulators. He called Blue Cross “belligerent” and “uncooperative.”

The overall picture is of a company that even a business-friendly Republican candidate and official like Poizner feels he can’t trust.

One quick result is a demand from U.S. Health and Human Services Secretary Kathleen Sebelius that all health insurance firms planning rate increases list on their websites the specific medical expenses that allegedly justify those hikes.

Anthem is also in court defending itself from a consumer lawsuit claiming Blue Cross illegally closed certain types of policies to new members and offered existing customers fewer benefits at higher prices.

All this is not the picture Anthem painted in late 2004, when its spokesman claimed the WellPoint acquisition would have “many benefits for Californians and policyholders.”

At the very least, the latest actions of the new WellPoint/old Anthem violate the spirit of the deal it made in 2004. At worst, courts will find some of those actions strikingly illegal.

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Email Thomas Elias at tdelias@aol.com. His book, "The Burzynski Breakthrough," is now available in a soft cover fourth edition. For more Elias columns, visit www.californiafocus.net