Anthem's proposed acquisition of Blue Cross and Blue Shield of Kansas may be on its way to a showdown in the state's Supreme Court.
Kansas Insurance Commissioner Kathleen Sebelius last week appealed a June 7 ruling by a state court judge who overturned her initial rejection of the $370 million Blues sale to Indianapolis-based for-profit Anthem. Shawnee County District Judge Terry Bullock ordered Sebelius to take another look at the deal, which she blocked in February on the grounds that it would result in "millions of dollars in increased health insurance rates" and "threatened the local healthcare decisionmaking" Kansans depend on from the Blues.
Sebelius announced on June 11 that she would appeal and was additionally entering a motion to transfer the case from the state court of appeals to the Kansas Supreme Court.
"This judge's opinion is incorrect and not in the interests of the people of Kansas," Sebelius said in a written statement. "I'm confident that, when all is said and done, the people of Kansas will be protected and Kansas Blue Cross (and) Blue Shield will remain in the hands of its local policyholders."
Sebelius' rejection of the insurance conversion is the first time a state insurance commissioner has denied a deal from proceeding, and the legal outcome could set a strong precedent for increased state scrutiny in other conversion deals, said Gregg Mackuse, an attorney with Philadelphia law firm Miller, Alfano & Raspanti.
The proposed merger in Kansas reflects a trend in Blues plans' consolidation nationwide, he said, with WellPoint and Anthem leading the way as buyers (See related story, facing page)."It's not going to end in Kansas-the battle ground will change from state to state" Mackuse said. "This is the beginning of a series of mega-mergers." The proposed sale, which would require the Blues to convert from a mutual company to a for-profit, was announced in May 2001. Both Anthem and the Blues filed appeals in March after Sebelius ruled against the sale. In her February order, Sebelius said Anthem's premiums for small groups and individuals would exceed rate increases that would occur under the Blues plan's current management. Anthem would also increase rates more quickly than the Blues because it would seek higher underwriting margins than the Blues plan, she said. Based on their own calculations, a Kansas Insurance Department legal team, working independently of Sebelius, reported that Anthem would have to raise the premiums at the Blues by $248 million over five years to meet its target profit margin.
Blues officials said the company felt "vindicated" that the judge "recognized the validity" of its legal argument that Sebelius acted outside Kansas statutes in denying the deal based on speculation about future premium rate increases. Because Kansas law gives the insurance commissioner the authority to regulate premiums, dividend payments and surplus levels, "she had no legal reason to deny the affiliation based on areas in which her department already has been granted authority by the Legislature," Blues officials said in a written statement.
Bullock, in his final order, said that "although the commissioner is granted power to supervise insurers and to enforce the Kansas Insurance Code, she is not authorized to add or change established legal requirements or take regulatory action based upon anticipated premium rates or levels of surplus that would be either required by or consistent with the law."
Anthem and Blues officials said they expected Sebelius' appeal.
It remains to be seen if the court of appeals will hear the case. If the state's Supreme Court justices believe the case has substantial statewide interest, they can request that it be sent directly to their docket, Blues spokeswoman Mary Beth Brutton said.