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Insurer Anthem Announces Merger With Blue Cross of Connecticut

October 1, 1996

INDIANAPOLIS (AP) _ Anthem Inc., seeking to grow larger to survive in the increasingly competitive health insurance business, said Tuesday it would merge with Blue Cross & Blue Shield of Connecticut, its second deal within four months.

The planned merger follows Anthem’s May announcement that it would combine with New Jersey Blue Cross & Blue Shield, which was already in the process of buying the Delaware ``Blues.″

The Connecticut company had $1.5 billion in revenues last year and provides health insurance and managed health care plans to about 850,000 customers. Anthem currently has $6.1 billion in annual revenues and 9 million customers in all 50 states, including 4 million subscribers to Blue Cross and Blue Shield programs in Indiana, Ohio and Kentucky.

If all the pending mergers gain approval from policy holders and state regulators, Anthem would become a company with more than $11.5 billion in revenues, making it among the nation’s biggest health plans.

Many Blue Cross plans have been slow to move out of traditional health insurance and into managed health care plans such as health maintenance organizations. As a result, large for-profit HMOs have stolen thousands of members by offering employers lower cost health coverage for their workers with stable monthly premiums.

In response, some ``Blues″ plans have been converting to for-profit companies or have agreed to mergers or buyouts to make them more competitive and speed the conversion of their members to managed care.

``It is our belief that only those companies with concentrated market share and the ability to deliver high quality and affordable health care to their customers are going to survive in our health care system,″ L. Ben Lytle, Anthem’s president and chief executive, said in a written statement.

``The underlying economics of health care are changing very quickly and very dramatically,″ said Anthem spokesman Bill Carmichael. That makes it imperative for companies to grow enough to give them more purchasing power and generate enough capital to invest in information systems and other needs, he said.

While the companies said Tuesday that there will be little impact on policy holders and patients, consumer groups in other states have fought buyouts of Blue Cross plans. They have contended the mergers would mean abandonment of the Blues’ traditional role as the insurer of last resort for the poor.

In some states, regulators have required the plans to set up charitable foundations, which would receive large cash donations from the merged companies to help ensure the poor get adequate coverage.

Terms of the latest deal were not announced. As with the New Jersey merger, no cash is expected to change hands. Anthem, formerly The Associated Group, is a mutual insurance company owned by its policyholders. It does not sell stock to the public as most other for-profit HMOs do.

The board of the Connecticut insurer approved the merger this week, and Anthem’s board is expected to do likewise later this week, Anthem said.

The merger trend is likely to continue, said analysts.

``There are 62 Blue Cross plans in America and they should have merged 10 years ago,″ said Kenneth S. Abramowitz, a health care analyst with the securities firm Sanford C. Bernstein & Co. in New York. ``We probably only need between one and 10.″

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