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Kansas court overrules insurance commissioner on Anthem acquisition

Editor's note: The Kansas Supreme Court has agreed to hear arguments about the disputed sale of Blue Cross and Blue Shield of Kansas to Anthem Inc. Kansas Insurance Commissioner Kathleen Sebelius is asking the state's highest court to appeal a district court judge's ruling that overturned a decision she made to block the deal. The Kansas Supreme Court is expected to hear the case in September 2002.

The Shawnee County District Court has overruled the Kansas Insurance Department's decision to deny the sale of Blue Cross and Blue Shield of Kansas (BCBSKS) to Anthem Inc.

"This judge's opinion is incorrect."

The ruling negates the Feb. 11, 2002, decision made by Kansas Insurance Commissioner Kathleen Sebelius to reject the proposed sale and sends the case back to her for further consideration.

In his decision, Judge Terry Bullock says Sebelius was "elusive" and contradictory in her findings on the proposed acquisition because she originally said she would approve of BCBSKS's conversion to a stock company only if it received a $190 million infusion from Anthem — money that would only come with the merger, which she then denied. (As a condition of the proposed sale, nonprofit BCBSKS would have to convert to a stock company through a process known as a "sponsored demutualization." See What demutualization means for policyholders.)

Bullock's decision says that while "the insurance 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 to regulatory action based upon anticipated premium rates or levels of surplus that would be either required by or consistent with the law. Sebelius originally nixed the sale because she says the deal would cost consumers $248 million in additional health insurance premiums over the next five years.

Officials with BCBSKS say they "feel vindicated" by the court's ruling and they will await a decision from Sebelius as to what course of action she plans to take next.

Sebelius says she is "undeterred" by the court's ruling. "This judge's opinion is incorrect," she says. "I intend to carefully study this judge's ruling and will strongly consider asking the Kansas Supreme Court to review the decision."

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