Pennsylvania’s Two Biggest Health Insurers in Merger Talks Again

July 17, 2006

Pennsylvania’s two largest health insurers are discussing a possible merger, which could happen as early as September.

Independence Blue Cross, based in Philadelphia, and Pittsburgh-based Highmark Inc. are part of the national nonprofit “Blue” insurance cooperative network that started in the 1930s.

Both companies recognize the need to work together “to grow their business, achieve economies of scale, and improve their customer service,” Highmark spokesman Michael Weinstein told The Philadelphia Inquirer.

The two companies have engaged in merger talks before without reaching agreement. They also have collaborated on state-sponsored health insurance for the working poor and low-income children, and on Medicare Part D prescription coverage for the elderly, Independence spokeswoman Elizabeth Williams said.

In California, Michigan and other states, Blue Cross/Blue Shield affiliates have consolidated to better compete with private insurers.

Neither Weinstein nor Williams would comment on how the merged Blues might be run or how employers, workers, doctors and hospitals could be affected.

Highmark was originally a “Blue Shield” company, managing relationships with physicians, while Independence and other Pennsylvania-based “Blue Cross” companies focused on hospitals. Those definitions have become less clear-cut in recent years.

“If this thing comes together, we’re thinking maybe Labor Day,” said M. Walter D’Alessio, chairman of Independence’s board. “These are large and complicated companies with lots of moving parts.”

There has been no merger vote at Highmark, although a decision is likely in two to three months, said Bill George, a Highmark board member and head of the Pennsylvania AFL-CIO labor union federation.

Independence, with its dominant market share in the Philadelphia region, collected about 28 percent of Pennsylvania’s $28 billion in annual health insurance premiums, according to the most recent available state figures, from 2004.

Highmark collected about 27 percent, in western and central counties, though out-of-state business makes it bigger than Independence overall.

Philadelphia’s consumer affairs director, Lance Haver, said public health activists likely would agree to a merger if it meant more funding for covering the uninsured, but oppose any merger plan that would reduce the companies’ nonprofit obligations.

“Blue Cross was founded to be a nonprofit cooperative. That’s how you best meet everyone’s needs,” he said. “A for-profit company’s goal is different — it’s to create profit for the owners.”

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