Boards of Pa.'s big Blues back merger

Just 2 rivals would outweigh Independence-Highmark.

Posted: March 29, 2007

Yesterday's decision by Pennsylvania's two largest health insurers to merge would create a behemoth that would handle more business than all but two national competitors.

Independence Blue Cross and Highmark Inc. say they intend to maintain dual headquarters in Philadelphia and Pittsburgh, employ more than 18,000 people in Pennsylvania, and improve health-care access and quality throughout the state while looking aggressively to expand.

But much about the proposed transaction between the nonprofit holding companies remains unknown, including whether subscribers will see any reduction in premiums.

"Every dollar that we can achieve" will go into funding the health-care needs of the community, said Independence Blue Cross' chief executive officer, Joseph A. Frick, who would become chief operating officer of the as-yet-unnamed entity.

Frick and Highmark chief executive Kenneth R. Melani, who would be CEO of the new venture, said the company would provide $650 million to expand access to health insurance for the uninsured.

But it was unclear after yesterday's news conference whether that was new money or what the two companies would have spent individually.

It was also unclear when, if at all, the deal would be made final, given the many regulatory approvals required.

Meanwhile, the Pennsylvania Senate approved a bill yesterday that would increase state Insurance Department oversight of the deal. It would submit mergers of nonprofit companies like Highmark and Independence Blue Cross to the same scrutiny as deals involving for-profit companies. The bill still faces a vote in the House of Representatives.

Sen. Donald White, chairman of the Banking and Insurance Committee, said he would likely call a hearing on the deal.

"Primarily, we have to be concerned that this merger could create a single multibillion-dollar mega-entity, which would crush what little competition remains in Pennsylvania's health-care-insurance market," White said in a news release.

The companies' plans must pass muster with Pennsylvania's Insurance Department and Attorney General's Office, in addition to regulators in other states where they do business, including New Jersey, Delaware and West Virginia.

"Our highest priority is to see that the consumers would be protected in this type of transaction," acting Insurance Commissioner Randy Rohrbaugh said in a statement.

The two insurers will also need federal approval from the Department of Justice and the Federal Trade Commission.

Independence dominates the Philadelphia market, and Highmark is the largest insurer in the western half of the state. Providing coverage for eight million people, they control 53 percent of the Pennsylvania market, according to the National Association of Insurance Commissioners.

Reaction to the merger plan was limited yesterday, with everyone calling for more details.

Jonathan Stein, general counsel for Community Legal Services Inc., said it was telling that the companies failed to mention anything about the merger's impact on premium costs.

He called for hearings and questioned the millions of dollars in savings the companies said would result from a merger.

"This whole merger is highly troubling," said Stein, whose Philadelphia organization advocates on behalf of health-care consumers. "There doesn't appear to be anything in it that will benefit the public, especially around the premium reductions or freezes."

Health-care providers also sought more information. "Before we take an official position, we want to see what the details are," said Kenneth J. Braithwaite, senior vice president of the Hospital and Healthsystem Association of Pennsylvania.

The Pennsylvania Medical Society raised concerns about the size of the combined company and its impact on competition. "We want to make sure that subscribers have an affordable insurance product," said the group's president, Mark Piasio, a surgeon in DuBois.

The proposed merger comes at a time when the high cost of health care and the rising numbers of uninsured are spurring states to act. Governors of several states, including Pennsylvania, have proposed wide-ranging plans aimed at covering the uninsured - and are looking for ways to fund those plans.

Independence and Highmark say they can contribute $650 million to expanding access to health insurance.

The deal, which was unanimously approved by both boards, would make the combined company the third-largest in the nation in terms of premiums, behind UnitedHealth Group Inc., of Minnetonka, Minn., and WellPoint Inc., of Indianapolis, both for-profit companies.

In yesterday's news conference, Melani said the insurers intended to remain nonprofit. M. Walter D'Alessio, the current chairman of Independence Blue Cross, would be chairman of the combined board. Highmark chairman J. Robert Baum would be vice chairman.


Contact staff writer Jane M. Von Bergen at 215-854-2769 or jvonbergen@phillynews.com.

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