Anthem-WellPoint Merger Finalized After Deal To Give Georgia Funds for Rural Health, Medical Schools Completed
Georgia Insurance Commissioner John Oxendine (R) on Tuesday approved a $16.4 billion merger between California-based WellPoint Health Networks and Indiana-based Anthem after Anthem agreed to provide a total of $126.5 million for health care programs, the Atlanta Journal-Constitution reports. The approval by Oxendine completes the merger (Miller, Atlanta Journal-Constitution, 12/1). The California Department of Managed Health Care on Nov. 24 also approved the merger. The merger, which was announced in October 2003, will combine the companies under the corporate name WellPoint and establish headquarters in Indiana. The merger creates the largest U.S. health insurer, with 28 million members in 13 states. Anthem Chair and CEO Larry Glasscock will serve as CEO of the new company, and WellPoint CEO Leonard Schaeffer will serve as chair. Anthem and WellPoint shareholders and a number of entities with direct regulatory authority -- such as the Department of Justice, nine other states and Puerto Rico -- previously approved the merger. California Insurance Commissioner John Garamendi (D) in July decided not to approve the merger; however, he dropped his opposition after WellPoint and Anthem agreed to provide California with $265 million to fund health care programs. In addition, WellPoint and Anthem guaranteed that the new company would increase expenditures on patient care and promised that they would not increase premiums for members in California to help finance the merger (Kaiser Daily Health Policy Report, 11/29).
Oxendine in July rescinded his June approval of the merger, which he said would have provided no financial commitments to Georgia, where WellPoint has 3.1 million members through subsidiary Blue Cross Blue Shield of Georgia (Kaiser Daily Health Policy Report, 11/12). Oxendine decided to approve the merger after Anthem agreed to contribute about $100 million to Georgia over the next 20 years. Under the agreement, Georgia for the next 20 years will receive 2% of the Anthem investment portfolio to purchase bonds to expand and improve rural health centers in the state (Furhmans, Wall Street Journal, 12/1). In addition, Anthem will provide Georgia with $26.5 million to allow patients in rural areas to telecommunicate with specialists in other areas of the state (Atlanta Journal-Constitution, 12/1). Anthem agreed to build, supply and finance telemedicine centers at 36 rural hospitals, clinics and four teaching hospitals in Georgia (Wall Street Journal, 12/1). Georgia officials have not determined which of the 36 hospitals in the state will receive the telemedicine equipment. However, Oxendine said that he expects the telemedicine system to become operational in 18 months (Basinger/Eckenrode, Florida Times-Union, 12/1). Under the agreement, health insurance policies issued by the new company will cover all procedures conducted at the telemedicine centers, according to Oxendine. In addition, WellPoint and Anthem promised that they would not increase premiums for Georgia BCBS members (Wall Street Journal, 12/1).
Oxendine said, "It is vitally important to our state to ensure that our rural citizens have equal access to the best possible health care" (Atlanta Journal-Constitution, 12/1). He added, "This money can be used for almost any purpose that these rural health care facilities need. They can expand their facility, they can buy new equipment, they can hire specialists, whatever they need to provide higher quality health care to citizens in Georgia" (Florida Times-Union, 12/1). Schaeffer said, "This merger is a great strategic and geographic fit" (Girion, Los Angeles Times, 12/1). However, Foundation for Taxpayer and Consumer Rights Health Care Policy Director Jerry Flanagan said, "One hundred million sounds like a lot, but it's actually a much smaller payout. Georgians are getting shortchanged. Unfortunately, it's the patients who will pay the bill. When mergers occur among mega-HMOs, history shows that competition goes away and premiums increase" (Atlanta Journal-Constitution, 12/1).
Effects of the Merger
The new company expects the merger to lead to savings of $150 million this year and at least $250 million annually in the future. However, the effect for members "may be limited," the Los Angeles Times reports. Glasscock said that members likely will receive more health care options and reduced health insurance premium increases but not lower premiums. The merger will entitle 293 WellPoint directors, officers and other executives to receive combined executive compensation of as much as $356 million, which does not include stock options. Based on the number of executives expected to remain with the new company, Glasscock estimates that executive compensation payments will total about $250 million. Schaeffer will receive $47 million in "change-in-control" payments, according to the Times. He also is entitled to stock and options valued at $188 million (Los Angeles Times, 12/1). Current WellPoint shareholders will receive one share of Anthem common stock for each WellPoint share, in addition to $23.80 in cash per share (AP/Richmond Times-Dispatch, 12/1). The new company will announce a corporate logo this week, and company shares will trade on the New York Stock Exchange as WLP and will open at more than $100 per share (Swiatek, Indianapolis Star, 12/1).