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Archive for Saturday, June 8, 2002

Judge: Sebelius erred in Anthem decision

June 8, 2002

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

Sebelius said she was considering an appeal, possibly to the Kansas Supreme Court.

See past stories and video about the Anthem-Blue Cross and Blue Shield of Kansas merger at www.ljworld.com/section/bcbs.

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

In his 15-page order, Shawnee County District Judge Terry Bullock said the only issue before him was whether Sebelius' denial of the sale was legally sound. Bullock concluded it was not.

His ruling revives the high-profile Anthem-Blue Cross issue as Sebelius, a Democrat, runs for governor.

The proposed Anthem-Kansas Blue Cross deal is one involving giants. Indianapolis-based Anthem provides health insurance in eight states; Blue Cross of Kansas is the largest health insurer in the state, covering more than 700,000 people.

Anthem has proposed buying Blue Cross of Kansas for $190 million. The proposal also would involve disbursing an average of $1,500 to 172,000 policyholders and would make Blue Cross a company owned by stockholders instead of policyholders.

Blue Cross maintains the merger would enable it to compete, keep down premiums and offer new kinds of policies.

But on Feb. 11, Sebelius shocked the insurance world by denying the acquisition. She said Anthem would have raised rates significantly more than Blue Cross would without the acquisition. And, she said, Anthem would severely deplete the surplus of Blue Cross.

Her decision was hailed by consumers and health-care groups in Kansas and nationally. It was the first time Anthem, which had bought Blue Cross plans in several states, had ever been rebuffed by a state insurance commissioner.

Both Anthem and Blue Cross appealed the decision, saying Sebelius strayed from state laws governing insurance company acquisitions to reach her conclusions.

Bullock agreed.

Judge's call

Bullock said Anthem's plan to bring two unprofitable lines of Blue Cross policies to profitability two years earlier than Blue Cross had planned could be accomplished through reduced medical and administrative costs, not necessarily increased rates.

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

In addition, Bullock wrote that any insurance rate increase 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.

He said it was "illogical, if not arbitrary and capricious, for the commissioner to base her denial solely on these 'projections.'"

Bullock also mentioned he was 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."

Insurers pleased

Larry Glasscock, Anthem president and chief executive, said the company was pleased "the court has affirmed our position" and that Anthem would "serve Kansas Blue Cross members well, bringing quality, affordable products to Kansas as we have in all other states in which we operate."

Graham Bailey, a spokesman for Blue Cross 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 said that wasn't going to happen. She said the Insurance Department had 30 days to decide if it would appeal Bullock's ruling. Sebelius also could deny the merger in a new order based on different arguments than those cited in her first rejection.

She called Anthem "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."

Missed point

Sebelius said Bullock's statement that the insurance commissioner could control future rate increases was off the mark because the commissioner was limited by law to accept rate increases offered by companies that were not excessive.

"The law is tilted very much in favor of the companies," she said.

Asked if Bullock's rejection of her order would affect her campaign for governor, she said, "I don't think that's a question I can evaluate. I'm going to go forward as commissioner with the best possible decisions on behalf of the people of Kansas."

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