California Insurance Commissioner John Garamendi formally denied approval of the pending $16.4 billion merger of WellPoint Health Networks and Anthem, creating a major roadblock for the companies' plans to create the nation's largest health insurer with 28 million members. Garamendi said at a press conference that he could not "in good conscience" approve the proposed transaction, which he called "prejudicial, unfair and unreasonable to policyholders and consumers." He said that Blue Cross of California's 7 million policyholders would end up paying much of the cost of the merger through higher premiums and reduced services. Blue Cross of California is a unit of WellPoint.
Garamendi's announcement came just hours after the California Department of Managed Health Care, which regulates the state's HMOs, granted approval of the merger. But because both the insurance and managed-care departments must approve the merger before it can proceed, Garamendi's decision could delay the deal indefinitely. Anthem and WellPoint, which had originally expected the deal by close by mid-2004, said they were evaluating all available options, including legal action. "Commissioner Garamendi's politically motivated decision is a clear abuse of discretion that cannot possibly benefit Californians," Thomas Geiser, WellPoint's general counsel, said in a news release. To deny the insurers' merger application after eight months of review and approvals from the other regulators "demonstrates that Mr. Garamendi has overstepped his authority as a state insurance commissioner." The merger has already been approved by the U.S. Justice Department, both companies' shareholders and regulators in 10 of the 11 states that have a direct say in the deal. -- by Laura B. Benko