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A merger to create the nation’s largest health insurance company can proceed after California’s insurance regulator dropped his objections to a $16.4 billion deal following an agreement by the two companies to pay hundreds of millions of dollars for state health care improvements. For months, Insurance Commissioner John Garamendi had blocked Indianapolis-based Anthem Inc.’s proposed acquisition of WellPoint Health Networks Inc., saying it would pull $400 million a year out of California in the form of dividends and that the buyout package it offered WellPoint’s chief executive was excessive. In the proposed deal, Anthem would acquire Blue Cross Life & Health, a California subsidiary of WellPoint and the only one of 75 subsidiaries involved that would fall under Garamendi’s jurisdiction. Garamendi had also demanded the companies contribute $600 million to California’s uninsured population as a condition of his approval. On Tuesday, Garamendi told reporters that he negotiated a slate of “concessions and contributions” last week that would ensure the deal would not result in higher premiums for California consumers while benefiting health care programs for low-income residents. “With these additional concessions and commitments by Anthem and WellPoint, I am today announcing that I will approve Anthem’s application and will allow a change in control of Blue Cross Life & Health Insurance Co.,” Garamendi said. Despite California’s blessing, Anthem and WellPoint still must secure approval from insurance regulators in other states before completing the buyout deal. In all, some 28 million people in 13 states would be covered by a combined Anthem-WellPoint, with about a quarter of those in California. In a joint statement, the companies said they were in talks with other state officials. “We are well prepared to quickly and successfully integrate our two organizations,” said Larry C. Glasscock, Anthem’s chairman, president and chief executive. Investors were enthused with the resolution, Wellpoint shares rose $2.20, or almost 2 percent, to $116.10, in early trading Wednesday. The shares had soared 8.5 percent, up $8.93 to $113.90 Tuesday on the New York Stock Exchange. Anthem shares were up $2.13, or 2.3 percent, to $93.36 early Wednesday, after gaining about 5.5 percent, or $4.73, to $91.23 Tuesday. A lawsuit Anthem filed against Garamendi in August for blocking the proposed merger was dismissed because of the settlement agreement, the commissioner said. After holding a series of public hearings, Garamendi rejected the deal July 23, saying it would reduce the quality of health care for policyholders. He also criticized the merger’s executive compensation package, saying the payouts were excessive in a state where 6 million residents lack health insurance. Garamendi said that as part of the new deal, California would be able to review an accounting of BCLH’s rates to make certain premiums would not increase to pay for the buyout. The companies also agreed to contribute $35 million to provide health care clinics in underserved California communities, $15 million to extend the number of children covered by the state’s Healthy Families and MediCal program and $15 million to train 2,500 new nurses. The companies also pledged to allocate $200 million over 20 years to invest in health care services to underserved communities, and to develop a program to improve health care quality in the state. Garamendi said if the executive compensation plan for 300 WellPoint executives, one third of whom work in California, exceeds $265 million, the companies have agreed to pay the state dollar for dollar in matching incentives. The California Medical Association, which opposed the merger in hearings this year, praised Garamendi for winning extra millions for the state’s medical needs. “There will be some who will say this isn’t enough,” said Dr. Jack Lewin, the CMA’s chief executive. “But in fairness, this is a much better approach to the merger than was previously proposed, for doctors and patients.” Anthem spokesman Ed West said it was too early to know whether other states would seek to strike incentive-laden deals similar to California’s. “There really has not been a material change,” West said, referring to how policyholders in other states would be affected by the companies’ settlement in California. Both companies reported strong growth in income during the three months ending Sept. 30. Anthem reported $242.1 million in earnings compared with $196.5 million during the same quarter in 2003. WellPoint reported third quarter net income of $315.1 million compared to $246.2 million in the third quarter of 2003. Among the states and territories that earlier approved the merger: Puerto Rico, Delaware, Illinois, Georgia, Missouri, Oklahoma, Texas, Virginia, West Virginia and Wisconsin. Associated Press Writers Jim Wasserman in Sacramento and Ken Kusmer in Indianapolis contributed to this story. Copyright 2004 Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.

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