A Dubious Healthcare Merger
There’s no doubt that worthy healthcare causes in California will benefit from the merger of health giant Anthem Inc. with Santa Barbara-based WellPoint. It’s a lot less clear whether all the millions that Insurance Commissioner John Garamendi has extracted from the insurers will make up for the damage the deal could do to California consumers.
Garamendi says Anthem has promised not to hike premiums to help cover the acquisition’s $4-billion cost. But Anthem made similar assurances in 2001 before acquiring Blue Cross and Blue Shield of Maine, where it is now raising individual policyholders’ rates 14.7% to cover “increased costs.”
All in all, despite the $265 million that the companies have agreed to lavish on state charities like the Los Angeles Free Clinic, the deal looks only marginally better than it did in July, when Garamendi denounced it as a sop to “the outrageous and extraordinary greed of executives.” On Tuesday he withdrew his opposition while announcing the huge charity payout.
WellPoint executives -- who could pocket up to $600 million in buyout and bonus payments from the deal -- insist that it will create “an even stronger organization [to] better serve our members.”
Stronger, perhaps. The new company would be the nation’s largest health insurer. But better for consumers? Some economists believe that healthcare costs so much more in the United States than in other developed nations because U.S. hospital chains and insurers have rapidly consolidated in recent years. It’s Economics 101 -- less competition leads to higher prices.
Garamendi may have squeezed as much from Anthem as his authority allowed. Only 10% of Blue Cross members fall under his jurisdiction as insurance commissioner. The other 90% are in health maintenance or preferred provider organizations nominally regulated by Cindy Ehnes, director of the state’s Department of Managed Care. Earlier this year, Ehnes greenlighted the deal, even though consumer advocates and legislators said they didn’t understand its terms.
One of the reasons Ehnes and Garamendi have mounted such different responses to this deal is that they are regulating from a void. There are no standards governing healthcare acquisitions in California, and the federal government has failed to set basic ground rules.
Recognizing the lack of national leadership, Gov. Arnold Schwarzenegger should establish a commission to figure out why nearly a third of every healthcare dollar spent in California goes to overhead, not patient care. Such a commission could help guide future decisions by regulators. At the very least it might also keep Californians from being surprised if the new Anthem/WellPoint uses its formidable clout to jack up premiums.
