Pa. Health Insurers’ Merger Could Eliminate 1,000 Jobs

By Deborah Yao | April 11, 2007

The proposed merger of Pennsylvania’s two largest insurance companies could result in about 1,000 lost jobs, mostly through attrition, a company executive said this week.

Highmark CEO Dr. Kenneth Melani made the comments after a U.S. Senate Judiciary Committee hearing in Philadelphia on the planned merger of Independence Blue Cross and Highmark Inc., two nonprofit companies that are not traded publicly.

The job losses would represent about 3.5 percent of the companies’ combined work force.

Philadelphia-based Independence and Pittsburgh-based Highmark announced plans to merge two weeks ago to create a company that would be the third-largest Blues plan in the country, after Wellpoint Inc. in Indianapolis and Health Care Service Corp. in Chicago.

The company would also control more than half of the Pennsylvania market, which brought swift reaction from lawmakers. U.S. Sen. Arlen Specter called for a hearing and the state Senate passed a bill that would give the state Department of Insurance authority over mergers between nonprofit insurers at the holding company level, retroactive to Jan. 1.

Gov. Ed Rendell said he’ll sign the bill.

“This proposed merger has major implications for the people in the Commonwealth of Pennsylvania,” Specter, R-Pa., said at this Monday’s hearing.

Specter questioned whether the companies truly functioned as nonprofits, with their billion-dollar surpluses and multimillion-dollar pay packages for chief executives.

In 2005, Independence had a surplus of $1.43 billion, up 11 percent from the prior year. Highmark’s surplus topped $2.8 billion, up 12 percent from 2004.

Last year, Melani received salary, bonus and other compensation totaling $3.2 million, according to filings with the state Insurance Department. Joseph Frick received a total of $1.1 million as CEO of Independence Blue Cross’ health insurance division and other subsidiaries.

Lawmakers, hospitals, doctors and consumer advocates voiced concerns that the merger would reduce competition, leading to higher premiums and lower reimbursement rates to providers. They also fear that a massive Blue insurer would deter other insurers from entering the state.

“We have little enough competition in Pennsylvania as it is,” Rendell said.

Independence currently serves 3.4 million members, mainly in the Philadelphia area. Highmark has 4.6 million members, mostly in the western part of the state.

Melani and Frick said the merger will lead to savings and revenue growth of more than $1 billion over six years, as the insurers improve efficiency.

The combined company plans to cut prescription drug costs for customers by $285 million, give more than $650 million to help the uninsured and underinsured, and spend $300 million to expand health-care coverage in the state, company officials said.

The insurers said they will hold administrative fees flat for two years.

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