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Archive for Tuesday, February 12, 2002

Anthem denial is first in U.S.

February 12, 2002

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— Saying it would have cost the state too much, Insurance Commissioner Kathleen Sebelius on Monday rejected an Indiana company's bid to gobble up the biggest health insurer in Kansas.

"I am denying this takeover because it would have cost Kansas businesses, small employers and families millions of dollars in additional health insurance premiums," Sebelius said at a news conference.

The decision stops Indiana-based Anthem Insurance Cos. Inc.'s $190 million bid to buy Blue Cross and Blue Shield of Kansas. Anthem, a publicly held corporation, operates former Blue Cross plans in eight states and covers about 7.8 million people.

The rejection also stops the proposed disbursement of $320 million by Blue Cross of Kansas to 172,000 policyholders  an average payment of $1,500 per policyholder, with many of those policies owned by senior citizens.

The disbursement was part of the plan to transform Blue Cross of Kansas from a company owned by policyholders into one owned by stockholders. Policyholders voted overwhelmingly for the proposed transformation. But the plan drew opposition from many Kansas doctors, hospitals and nurses, as well as an advocacy group for poor and working-class families.

Disappointment, praise

Graham Bailey, a spokesman for Blue Cross of Kansas, said he was "terribly disappointed" by Sebelius' decision. The insurer had argued it needed to join Anthem to remain competitive.

John Knack, chief executive officer and president of Blue Cross of Kansas, and officials from Anthem, said they would study Sebelius' order before deciding whether to appeal to state district court.

Blue Cross of Kansas officials were quick to note the company is in good financial shape and that Monday's ruling will not have an immediate effect.

"We are very viable, very healthy. The reason we wanted to do this now is that we could pick our partner," Bailey said.

Organizations representing hospitals, doctors, nurses and advocates for the poor praised Sebelius' decision. They had said an Anthem takeover would hurt health care quality because Anthem would cut corners to make higher profits.

Gene Meyer, chief executive and president of Lawrence Memorial Hospital, said Sebelius made the right decision. He said Blue Cross of Kansas succeeded in working through a normal down cycle in the health insurance business.

"Now they have an opportunity to work with providers and consumers to maintain their strong position," he said.

Rejected arguments

Blue Cross of Kansas had said it needed Anthem to help it increase its market share and spread its risk over a larger base of customers. Blue Cross has 45 percent of the Kansas market, with policies covering 400,000 people. Another 315,000 people have plans that are administered by the company.

But Sebelius rejected the arguments. She said Blue Cross of Kansas "is well-run, efficient and fiscally conservative, and will be into the future."

Sebelius said Anthem's need to satisfy stockholders would have driven the company to seek higher premiums, drained the Kansas insurer's reserves, scattered its expertise into Anthem's holding company and linked Blue Cross of Kansas with Anthem's worst-performing region.

"Corporate interests and the public interest are often the same, but not always. In this case, the corporate interests of the insurance companies were not consistent with the best interests of the people of Kansas," Sebelius said.

Earlier, a team within the Kansas Department of Insurance said if the deal went through, policyholders would have paid an additional $248 million in premiums during the next five years to meet Anthem's profit goals. Sebelius said that was a conservative estimate.

Precedent setting?

Carolyn Micek, a self-employed acupuncturist in Lawrence, would have received about $400 from the disbursement, but she said she was pleased Sebelius rejected it. She said it seemed that Blue Cross of Kansas was trying to pay off policyholders so it could increase its profits in the long run.

"I am so proud of Kathleen Sebelius. I feel like she really looked at all the information and was looking out for what was best for Kansas," Micek said.

The decision by Sebelius marks the first time Anthem has been rebuffed in its acquisition attempts, according to Dawn Touzin, a project director for Community Catalyst, which has monitored Anthem's actions in other states.

"This is precedent setting," said Touzin, who testified against the takeover in Kansas.

She said in most states, Anthem acquired Blue Cross plans that were in financial danger. This was not the case in Kansas, she said.

"Clearly, this Blue Cross was viable," she said.

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