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Archive for Friday, June 7, 2002

BCBS decision

June 7, 2002

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A judge Friday rejected Kansas Insurance Commissioner Kathleen Sebelius' order blocking the merger of Anthem Insurance Cos. with Blue Cross and Blue Shield of Kansas.

Sebelius said she is strongly considering appealing the decision to a higher court.

"This judge's opinion is incorrect, and not in the interests of the people of Kansas," she said.

In his 15-page order and decision, Shawnee County State District Judge Terry Bullock said the only issue was whether Sebelius' order was legally sound. He concluded it was not.

In February, Sebelius denied the merger, saying that Anthem would raise rates significantly more than Blue Cross would without the acquisition. And, she said, that Indianapolis-based Anthem would severely deplete the surplus of Blue Cross.

Both Anthem and Blue Cross appealed.

Anthem had planned to buy Blue Cross for $190 million. The deal would have involved the disbursement of $320 million to 172,000 policyholders in order to transform Blue Cross from a company owned by policyholders to one owned by stockholders. That would have been an average payment of $1,500 per policyholder.

On Friday, Bullock said Anthem's plan was to bring two unprofitable lines of Blue Cross policies to profitability two years earlier than Blue Cross had planned. He said there are a variety of ways to do this without raising rates, such as through reduced medical and administrative costs.

And, he said, that even if Sebelius' worst fears are realized about the depletion of Blue Cross' surplus, that surplus would still be more than the legally required level set by the Legislature.

In addition, Bullock wrote that any insurance rate increase or change in the surplus would require the commissioner's approval before it could take effect.

"The court is unwilling to presume, as a matter of law, that this or any subsequent commissioner would approve 'hazardous or prejudicial' and or 'unfair and unreasonable' rates or dividend distributions," Bullock wrote.

Sebelius' rejection of the proposed merger in February was hailed by consumer and health care groups who feared the takeover of Anthem, one of the largest insurers in the nation, of the Kansas Blue, which is the largest health insurer in Kansas. Those groups said Anthem would seek higher premiums and try to cut medical costs to the detriment of policyholders. Anthem and Blue Cross had denied those allegations.

In his decision, Bullock also mentioned that he too had been aware of news accounts questioning whether Anthem was willing to pay enough for Blue Cross and of huge bonuses given to Anthem executives. But, he said, all those questions "are not yet (and may never be) before the court."

Graham Bailey, a spokesman for Blue Cross and Blue Shield of Kansas, said, "Based on the judge's ruling, it's our expectation that she (Sebelius) will approve the affiliation. If she writes a new order that approves the affiliation, we will gear up and get ready to go very shortly."

But Sebelius, a Democratic candidate for governor, said that wasn't going to happen, and she would appeal the decision.

She described Anthem as "an aggressive, for-profit holding company whose primary objective is to beat its national competitors. That may be fine for Anthem, but it's simply wrong for the health care and economic security of the people of Kansas and our business community."

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