LOS ANGELES - California Insurance Commissioner John Garamendi, satisfied by millions of dollars in concessions to the state, cleared the way yesterday for health care giants Anthem Inc. and WellPoint Health Networks Inc. to complete their multibillion-dollar merger.
Anthem announced plans in October last year to acquire WellPoint in a deal valued at $16.4 billion, but Garamendi's refusal in July to approve the transfer of its Blue Cross Life & Health subsidiary, which has 7 million members in California, stalled the process.
Anthem sued, saying Garamendi lacked authority to block a deal, leading other states to rescind their initial approval.
As a result of his approval, the lawsuit was dismissed, putting an end to the legal wrangling. Although analysts speculated yesterday that other states could balk at the new terms, Garamendi's support clears a major hurdle for the bid to create the nation's largest health insurer.
"While I remain concerned about the concentration and enormous size of the companies ... I can now say that Californians won't have to pay for the merger," Garamendi said at a news conference.
Analysts say the merger costs have climbed to $18 billion as shares of Indianapolis-based Anthem, which would pay for much of the deal, have risen from about $70 more than two weeks ago to close at $91.23 yesterday. Shares of Thousand Oaks, Calif.-based WellPoint have climbed from $91.09 when the deal was announced to close at $113.90 yesterday.
Under the settlement negotiated in the past week, Anthem will invest $200 million over 20 years in under-served communities through the Healthy Families program. It also will spend $15 million on children's insurance programs, offer $35 million in grants to clinics and spend $15 million to train nurses through community college programs.
Garamendi expects the scholarships to add up to 2,500 nurses in the next five years. That would add a tiny fraction to the state's 293,000 licensed registered nurses, but Chuck Idelson of the California Nurses Association said it would be a good step forward.
"Anything that contributes funding for nursing education programs is certainly welcome. That's part of the overall program to address a serious problem," he said.
Anthem also agreed not to raise premiums for its Blue Cross Life & Health customers to foot the bill for the merger.
WellPoint declined to comment, referring questions to Anthem spokesman Ed West, who pledged that the company would not raise premiums for any of the 28.3 million customers under the combined company.
Garamendi "extracted another pound of flesh from Anthem shareholders and got them to agree to a number of restrictions on how they manage the Blue Cross subsidiary," said Dr. Curt Morrison, a cardiologist and health care analyst who follows the companies for Morningstar. "That ties the hands of the Anthem management if they want to increase premiums or make other changes."