Topeka ? Insurance Commissioner Kathleen Sebelius on Monday rejected the proposed acquisition of the state’s largest health insurance company by an Indiana firm.

Sebelius said the purchase of Blue Cross-Blue Shield of Kansas by Anthem Insurance Companies Inc., of Indianapolis, would raise consumer premiums too much.

Sebelius said when she was first elected to office in 1994, voters expected her to protect consumers.

“It would cost Kansas businesses, small employers, and families millions of dollars,” she said. “My job was pretty straightforward, to look out for the public interest.”

Critics had said the only way Anthem could make its new Kansas affiliate profitable was through increased premiums, limits on coverage, or both.

Outside counsel and attorneys for the Insurance Department told Sebelius in documents filed two weeks ago that the deal would have harmed consumers through increased premiums.

That legal team, working independently of the commissioner, said if the deal went ahead, premiums would have increased an additional $248 million over the next five years to meet Anthem’s profit margins.

“Frankly, the millions of dollars of rate increases is untenable for Kansas,” Sebelius said.

Anthem and Blue Cross officials had disputed the Insurance Department legal team’s conclusions and called its documents inflammatory and perplexing.

Anthem officials have said the people who depend on Blue Cross to cover their medical expenses would see a name change and new insurance cards but would not see any significant coverage differences.

Blue Cross could appeal Sebelius’ order in Shawnee County District Court. Spokesman Graham Bailey said Blue Cross would be looking at alternatives, but an appeal is not automatic.

“We’re terribly disappointed with this decision,” Bailey said.

Bailey said consumers should not worry about Blue Cross’ financial health in the wake of the decision.

“We are in a very viable position,” he said. “We are very healthy.”

He added: “The reason that we wanted to do this now is because we could pick our partner.”

Anthem operates former Blue Cross plans in eight states: Colorado, Connecticut, Indiana, Kentucky, Maine, Nevada, New Hampshire and Ohio. It covers about 7.8 million people.

Blue Cross is by far the largest health insurer in the state, with 45 percent of the market. It has 172,000 group and individual policies that cover 400,000 people, and another 315,000 people who work for employers who self-insure but have their plans administered by the Blues.

Blue Cross is owned by its policyholders, and as part of the deal, they would have received up to $321 million for the company. Much of the money would have represented premiums policyholders paid but the company held in reserve to offset future claims.

Blue Cross officials argued that their company was vulnerable in a competitive industry with national players like Aetna and United HealthCare.

As a mutual company, policyholders are the only source of capital for Blue Cross, which also cannot reach beyond its territory  all of Kansas except Johnson and Wyandotte counties.

In January, Blue Cross policyholders approved the deal. The vote was 63,504, or 63.4 percent, in favor and 36,618, or 36.6 percent, against. The 100,122 who voted represented about 58 percent of the 172,038 eligible to vote.

During a news conference, Sebelius made a point of noting that more than 60 percent of policyholders either voted against the transaction or did not vote.

Kansas doctors, hospitals and nurses, as well as an advocacy group for poor and working-class families were nervous about the conversion of a Kansas company owned by policyholders into a branch of an out-of-state firm with stockholders.

The Kansas Medical Society, the Kansas Hospital Association, the Kansas State Nurses Association and the Kansas Association for the Medically Underserved intervened in the proceedings before Sebelius.

Jerry Slaughter, the medical society’s executive director, said he believes Blue Cross would have been a weaker company after the acquisition.

He said he expects Blue Cross officials to consider another deal, perhaps with a new company. But, he said, the company should rethink being acquired.

“Their mission is serving Kansans first,” he said.