Pa.'s Blues to undergo unfair-trade inquiry

The Pennsylvania Insurance Department announced yesterday that it planned to investigate whether any of the state's four Blue Cross & Blue Shield insurance companies have engaged in "anticompetitive or unfair trade practices" that violate the law.

Examinations of Blue Cross of Northeastern Pennsylvania, Capital BlueCross, Highmark Inc., and Philadelphia-based Independence Blue Cross will begin this month and are to be finished by early 2010.

"When Highmark Blue Shield and Independence Blue Cross withdrew their consolidation proposal earlier this year, it was good news for consumers," Insurance Commissioner Joel Ario said. "But it did not improve the anticompetitive dynamics that remain at play in Pennsylvania's health-insurance marketplace."

The investigation will look at territorial restrictions, agreements among the Blues that may impede competition, and whether the Blues use their dominant market share - 60 percent of private health insurance - to unfair advantage.

Insurance companies are licensed to use the powerful Blue brand in certain territories by the Blue Cross Blue Shield Association in Chicago, Ario said. In Pennsylvania, for example, Horizon has the Blue Cross license for the Pittsburgh area, plus the Blue Shield license for the rest of the state, which would allow it to compete anywhere. However, it has chosen to compete only in central Pennsylvania, which is also Capital BlueCross territory. A noncompete agreement with Independence Blue Cross expired recently, he said.

Ario said testimony regarding the proposed Highmark and Independence Blue Cross merger convinced him that competition in central Pennsylvania has been good for consumers.

He said that legal challenges of Blue territories in other markets have been unsuccessful but that the dominance of the Blues in Pennsylvania may put the situation here in a different light. Ario said the department might also recommend changes in state law.

The four insurers said separately yesterday that they would cooperate with the state investigation and that they believed there was competition among insurers of all stripes in the state. Liz Williams, an Independence Blue Cross spokeswoman, likened the insurers to franchises such as McDonald's that compete with other brands, but not so much with one another.

Both Independence Blue Cross and Highmark expressed disappointment in the department's decision and said it would divert attention from more pressing matters as Congress debates health-insurance reform. Highmark said the investigation would increase its costs.

But Dennis Olmstead, chief economist for the Pennsylvania Medical Society, said the state's doctors had been raising concerns about a lack of insurance competition for years. Doctors and hospitals, who negotiate their fees with insurers, have complained that insurance companies here have too much clout.

"We think that the markets in Pennsylvania are not competitive," Olmstead said, "and finally it sounds like some of the rest of the world is recognizing that."

or sburling@phillynews.com.