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Archive for Thursday, March 6, 2003

State Supreme Court hears arguments in Blue Cross case

March 6, 2003

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— Kathleen Sebelius exceeded her authority as insurance commissioner last year when she blocked the sale of Blue Cross-Blue Shield of Kansas to an Indiana corporation, attorneys for the companies told the Kansas Supreme Court on Wednesday.

"She was usurping authority that was never given to her in the first place," said Kevin Fowler, a Topeka attorney representing Indianapolis-based Anthem Insurance Cos.

But a lawyer for the Kansas Insurance Commissioner's Office said the companies were seeking such a narrow interpretation of state law that the commissioner could never act in the public interest.

"It's clearly intended to give the commissioner very broad discretion and authority," said the lawyer, Dan Biles of Overland Park.

Blue Cross-Blue Shield, a nonprofit business owned by its policyholders, is Kansas' largest health insurer. About 660,000 Kansans are covered by individual or group Blue Cross policies.

Anthem, with 11.1 million policyholders, has become the nation's fifth-largest publicly traded health insurance company. It has grown by acquiring Blue Cross-Blue Shield plans in several states -- all with relatively prompt approval by regulators.

But Anthem had a Blue Cross acquisition thwarted for the first time when Sebelius, then Kansas' insurance commissioner, issued an order blocking its purchase of Kansas Blue Cross-Blue Shield last February.

Sebelius -- who was elected governor last November -- concluded that Kansans' health premiums would rise more steeply under Anthem than if Blue Cross remained on its own. She also said the transaction would deplete Blue Cross' surplus funds.

A Shawnee County District judge overturned Sebelius' order last June, and she appealed. Her order blocking the sale was featured in her campaign ads as she ran for governor.

Anthem and Blue Cross contend that even if their merger did raise premiums and lower the surplus funds, both would remain within lawful limits. They also say the transaction would give Blue Cross access to capital and new policyholders.

Wednesday's arguments before the Supreme Court focused on the 1974 state law governing the insurance commissioner's review of such transactions.

Fowler and Chicago attorney Gary McCallister, representing Blue Cross, said legislators wanted to smooth the way for deals like the one at issue.

They questioned whether the law allowed Sebelius even to consider premiums and surplus funds, since the insurance commissioner could handle those issues after the sale.

Justice Donald Allegrucci -- whose wife, Joyce, managed Sebelius' gubernatorial campaign and now is her appointments secretary -- suggested the companies were arguing for a "rubber stamp procedure."

"Don't we have the right to expect affordable premiums?" he asked.

McCallister replied that the insurance commissioner "must, as a matter of law, follow these rules."

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