Topeka ? Executives’ dreams of exploring new markets and tapping new sources of capital died when the Kansas Supreme Court blocked the sale of the state’s largest health insurance company to an Indiana firm.

So, too, did fears of doctors, hospitals and advocates for the poor who suggested Blue Cross-Blue Shield would lose its identity as a homegrown insurer if it were part of Indianapolis-based Anthem Insurance Companies Inc.

After the court ruled last week, Blue Cross said it would not pursue another deal with Anthem, or a deal with a different suitor, suggesting the company would remain a Kansas institution at least for the near future.

Wide latitude

The justices’ opinion also had an additional significance: It told Kansas residents that their elected commissioner wields broad powers in regulating the insurance industry and has wide latitude in considering what is in the public’s best interest.

“Without any doubt, it underscores the very substantial responsibilities and authority the insurance commissioner has,” said Jerry Slaughter, executive director of the Kansas Medical Society. “It erases any doubt anybody had about the commissioner having very broad authority.”

Anthem sought to purchase Blue Cross for $190 million. Anthem said coverage and claims service would not suffer, that its size — 11.7 million policyholders in nine states — would permit efficiencies. Critics didn’t buy it.

In February 2002, Kathleen Sebelius, serving as insurance commissioner and nine months away from being elected governor, concluded Blue Cross premiums would increase more if Anthem took over than if Blue Cross remained as it was. Sebelius also concluded that Anthem might reduce reserves from $286 million to as little as $90 million.

Court battles

She rejected the deal, the companies appealed, and four months later, Shawnee County District Judge Terry Bullock ruled Sebelius had exceeded her authority.

Bullock ordered Sebelius to reconsider; she went to the Supreme Court.

And the justices rejected what they called Bullock’s “narrowly based decision.”

The new commissioner, Sandy Praeger, praised the court for a ruling that “clarifies that we have the authority and jurisdiction” to deal with broad policy issues.

In reviewing the legal precedents cited by the Supreme Court, such clarification might not seem necessary.

As early as 1939, the court declared, “The statutory powers conferred on the commissioner of insurance are necessarily broad and comprehensive. It is a well-known historical fact that in bygone years the people of this state suffered many evils at the hands of unsound and ill-managed insurance companies.”

Extent of power

But decades of having a political dynasty control the commissioner’s office chipped away at that principle. Republicans had controlled the office for 95 consecutive years when Sebelius, a Democrat, won her first term as commissioner in 1994.

In fact, during the 68 years preceding Sebelius’ victory, only four Douglas County Republicans held the office: Charles Hobbs, Frank Sullivan, Fletcher Bell and Ron Todd. They grew to rely heavily on the industry for campaign contributions, which gave rise to accusations of coziness.

Even if the commissioners of those years were not overly cozy with the industry, they seemed to have adopted its thinking about the law and the extent of the commissioner’s power.

For example, in 1988, Todd, then assistant commissioner, convened hearings into a proposed hostile takeover of Farmers Group Inc., with an Overland Park subsidiary, by BATUS Inc., a Louisville, Ky., company. The two companies eventually would come to terms.

Then, Todd explained the law governing the acquisition as a serious restraint on the commissioner’s power, one that forced Bell to approve the deal except under limited circumstances.

Kansas residents can only speculate on whether Bell or Todd would have rejected the Anthem-Blue Cross deal, but it seems more likely than not that they would have approved it, as colleagues in other states have approved Anthem acquisitions.

Sebelius, however, ran for commissioner in 1994 promising to bring new thinking to the office and make the commissioner a stronger consumer advocate. She eschewed contributions from the industry, relying heavily instead on contributions from trial lawyers.

She saw the law as granting her power to act in what she considered the public’s best interest, as opposed to forcing her to acquiesce if certain technical requirements were met.

And the Supreme Court backed her up last week.