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California's insurance regulator dropped his objections to a $16.4 billion deal to create the nation's largest health insurance company on Tuesday, after the companies agreed 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, 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.

Garamendi had also demanded the companies contribute $600 million to California's uninsured population.

The companies still must secure approval from insurance regulators in other states before completing the buyout deal.

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