State knocks costs of Anthem merger

AUGUSTA – Maine officials have warned Anthem Health Plans of Maine that the state will oppose Maine ratepayers paying any portion of the cost of its parent company’s acquisition of California-based Wellpoint.

Indiana-based Anthem has agreed to pay over $600 million in compensation to the top executives of Wellpoint as part of the purchase.

Maine Insurance Superintendent Al Iuppa wrote last month to Marjorie Dorr, president of Anthem Health Plans of Maine, criticizing the “lavish” benefits being paid to Wellpoint’s top executives.

“At a time when more than one in seven Maine residents lacks health insurance and thousands more can only afford the barest, minimal coverage, the compensation packages afforded Wellpoint executives appear grossly excessive,” Iuppa wrote. “Corporate largesse of this magnitude only will serve to further tarnish the already much-maligned public perception of the health insurance industry.”

He said that while the state lacks the authority under current law to review the pending merger, his office will be vigilant to protect Maine ratepayers.

“We do intend to closely scrutinize all transactions between AHPM [Anthem Health Plans of Maine] and its parent and all future AHPM rate filings to ensure that this transaction will not be funded on the backs of Maine policyholders,” Iuppa wrote. “There can be no justification for raising the rates of Maine policyholders to finance the lavish retirements of these California officials.”

In her letter responding to Iuppa, Dorr defended the acquisition and said it would be good for AHPM and good for Maine. She pointed out the compensation plan was in place for the last decade at Wellpoint and was not negotiated by Anthem.

“The non-insurer parent holding company, Anthem, Inc., will absorb the cost of the change in control payments and any payments will not be the responsibility of Anthem Health Plans of Maine, Inc.,” she wrote. “As previously discussed with you and your staff, premiums in Maine will not increase as a result of this merger.”

Gov. John Baldacci said he wants to make sure that is what happens. He said he has instructed Iuppa to recommend any changes in state law that may be needed to make sure the costs are not passed on to Maine ratepayers.

“If there needs to be any changes, we will have them ready for the Legislature to consider,” Baldacci said. “I am very, very concerned about this, and I do not want Maine policyholders to pay for this excessive compensation.”

Maine had already scheduled its triennial examination of Anthem’s Maine subsidiary before the merger proposal, and that six-month study is under way.

The comprehensive exam will look at a wide range of financial issues, including compensation for executives of AHPM and the financial transactions between it and the parent company.

“During those reviews, they literally pull away all the different layers of the onion, including compensation issues which are part of the administrative costs,” Iuppa said. “This is probably one of the key areas where we will see if these costs are being passed on to ratepayers.”

Joe Ditre, executive director of Consumers for Affordable Health Care, is concerned that some of the costs could hit Maine policyholders through the web of transactions that occur between the Anthem companies.

He said the review of compensation is not enough, given the substantial pay packages officials of AHPM are receiving.

“We have seen our rates go up, we have seen access go down, we have seen the quality of care not improving,” he said. “So the question that must be asked is: ‘What are these executives doing to deserve this high compensation?'”

AHPM president Dorr received compensation totaling $913,956 in 2003.

Two other executives had packages over $300,000 a year, and four other executives had packages in excess of $200,000 a year.

Iuppa said the state does not review individual rates of compensation, but does scrutinize salaries as part of the overall administrative cost of the company.

He said six-figure salaries for top executives of Maine companies of comparable size “is quite common,” and that the executive salaries of AHPM are well below those paid by the parent company.

Documents made public by California regulators indicate Wellpoint CEO Leonard Schaffer is slated to receive $235.2 million in cash and stock under the proposed purchase of Wellpoint by Anthem.

When all the compensation packages for Wellpoint executives are combined, they total $607 million. That is more than the entire Maine state budget shortfall of about $350 million projected for next budget year.

California regulators have blocked the sale, and the matter is expected to be decided in court.

If finally approved, the merger will create the nation’s largest health management company, with more than 28 million patients. The new company will adopt the Wellpoint name.