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Archive for Tuesday, January 8, 2002

Hearings begin in insurance sale

January 8, 2002

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— Kansas Insurance Commissioner Kathleen Sebelius on Monday rejected an attempt by Blue Cross and Blue Shield of Kansas and Anthem Blue Cross and Blue Shield to strike testimony from experts critical of the two companies' proposed merger.

The move by the companies came at the start of a three-day hearing before Sebelius on whether to allow sale of Kansas Blue Cross to Anthem, a for-profit, investor-owned company that has taken over Blue Cross plans in eight other states.

The proposal must be approved by Kansas Blue Cross policyholders and Sebelius.

Under the deal, policies for the approximately 700,000 Kansas covered by Kansas Blue Cross would remain intact. But policyholders, who currently own the company, would receive a cash payment to terminate their rights of ownership.

After the conversion of Kansas Blue Cross, Anthem would buy the company for $190 million. Policyholders would receive about $320 million, which includes funds from the sale and Kansas Blue Cross' reserves.

At the hearing outset, Kansas Blue Cross and Anthem filed a motion with Sebelius to essentially wipe out filed testimony that criticized the proposal. The testimony was filed on behalf of associations representing hospitals, doctors, nurses and consumers who oppose the deal.

In a 13-page motion, attorneys for Kansas Blue Cross and Anthem said the opponents' information was irrelevant and outside the scope of what Sebelius could consider in deciding the deal.

But Dick Hay, an attorney for the Kansas Hospital Assn., said, "This is material that hurts their case, and they don't like it."

Testimony for the doctors and hospitals by Carl Schramm, a national insurance and health policy expert, implied the proposed deal did not make good business sense.

But Anthem and Kansas Blue Cross said laws governing Sebelius' decision don't allow her to "substitute her business judgment for the judgment of the board of directors and the judgment of the policyholders in weighing the costs and benefits of the transaction."

Earlier in the hearing, John Knack, president and chief executive officer of Kansas Blue Cross, said the Kansas plan needed to join the larger Anthem to become more efficient and take advantage of capital that Anthem could bring to make necessary improvements. A larger company, he said, would eliminate duplication and spread expenses over a larger number of people who are insured.

But under cross-examination, Knack conceded Kansas Blue Cross did not know how much, if any, savings would occur once Anthem took over.

He said there was no commitment by Anthem to infuse Kansas Blue Cross with any capital.

Knack also said $48 million of the $320 million to be paid policyholders will be in escrow until resolution of possible litigation by the federal government against Kansas Blue Cross.

The hearing continues today and Wednesday.

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