"Regulator Stalls Blue Cross Deal in California".

By Reed Abelson

"One man is now left standing between the $16.4 billion merger of two giant Blue Cross plans, Anthem and WellPoint Health Networks.

The companies had announced their intentions to create the nation's largest health insurer last October when Anthem agreed to buy WellPoint. Since then, the Justice Department and various other states have approved the deal, as have the companies' shareholders.

But, in a news conference held yesterday, John Garamendi, the commissioner for the California Department of Insurance, said he had denied the request to merge in what he described as his "final decision".

"This may have been seen as an extraordinarily good deal for officers and directors," he said, referring to the lucrative executive pay packages that have drawn stinging criticism from him and others. "But this is one lousy deal for policyholders and health care consumers in California."

Yesterday's decision does not necessarily scuttle the deal, because analysts say that Mr. Garamendi's office has jurisdiction over only a small fraction of the California operations of the two companies, which between them operate in a dozen other states. If the companies had no other recourse, analysts said, they could probably choose to spin off the pieces under Mr. Garamendi's purview.

But his decision prolongs the uncertainty over exactly when and how the merger could be completed, analysts said. Company officials, who had hoped to finish the deal by the middle of the year, accused Mr. Garamendi of political grandstanding and said they might take the matter to court.

"Sue me," Mr. Garamendi said in a telephone interview. "I want to take this to a judge."

The refusal by Mr. Garamendi, a Democrat who was a losing candidate in last year's gubernatorial election, came on the same day that another big regulator in the sate, the Department of Managed Health Care, approved the merger. That department's director, Cindy Ehnes, is an appointee of the state's Republican governor, Arnold Schwarzenegger.

Mr. Garamendi denied that his decision was politically motivated. Anthem and WellPoint, which were pioneers in the move to convert Blue Cross plans around the country to for-profit companies, had spent months in intense negotiations with Mr. Garamendi and Ms. Ehnes to win their approval of the merger...

"This is a case of the tail wagging the dog -- for political reasons," David C. Colby, the chief financial officer for WellPoint, said in a statement.

But Mr. Garamendi denied he was motivated by politics, saying he was not planning to run again for governor, and arguing that it was within his office's power to oppose the deal. "The law gives me the authority to judge a merger," he said.

At least one advocacy group, the Foundation for Taxpayer and Consumer Rights, which has been a vocal critic of the plan, praised his decision. The deal had been roundly criticized for the generous pay packages given to the executives involved and for the $3.4 billion in debt that would be incurred to help pay for it.

"Policyholders will pay for this debt," Mr. Garamendi said...

Reference:

"Health Merger Assailed: WellPoint Payouts for Executives Called Obscene".