Parties Clash Over Proposed Merger of Pennsylvania Health Insurers

By | July 14, 2008

State lawmakers, doctors and health care industry executives clashed last week over whether the proposed merger of Pennsylvania’s two largest health insurers will benefit or hurt consumers.

They were among roughly two dozen people who offered their views during a hearing before the state insurance commissioner in Harrisburg on the planned consolidation of Independence Blue Cross and Highmark Inc.

Among the critics was Sen. Don White, chairman of the Senate Banking and Insurance Committee. White, R-Indiana, questioned whether the two nonprofits had demonstrated that their marriage would have long-term benefits.

Independence Blue Cross, based in Philadelphia, and Highmark, a Blue Shield affiliate based in Pittsburgh, announced in March 2007 that they wanted to merge. The companies have said that the merger would save more than $1 billion over six years and have pledged to use $650 million of that savings to help uninsured Pennsylvanians obtain coverage.

“Let’s be upfront and clear and call these proposed ‘savings’ what they really are — excess premium dollars — plain and simple,” White said. “If the merger must meet the standard of being a benefit to the policyholders, then why are those dollars not being returned to them as premium reductions?”

A statewide lobbying group for doctors expressed concern that consolidation would also mean lower insurance reimbursements for physicians, particularly in counties along the borders between regions served by both companies.

“With the significant market share the consolidated company would have, provider reimbursement levels could be driven down below competitive levels and contract terms could be more one-sided than they currently are,” said Dr. Peter Lund, president of the Pennsylvania Medical Society.

Rep. Frank Dermody, D-Allegheny, countered that a merger would not diminish competition because the companies already operate in distinct regions of the state with no overlapping customer base.

“No competitors will be removed from the health care marketplace as a result of this consolidation,” Dermody said.

Independence operates mainly in the Philadelphia area, while Highmark’s policyholders live mostly in the western part of the state. Together, they serve more than 7 million people.

The hearing was the second in a series of three hearings that Insurance Commissioner Joel Ario is holding to gather public comment on the merger. The final hearing is scheduled for Tuesday in Philadelphia.

Several other people who testified in favor of the merger spoke about the companies’ philanthropy and community service, which includes giving grants to community health programs and providing services such as Highmark’s Caring Place, which helps children and families cope with the death of a family member.

But that should not influence the department’s decision, White cautioned.

“Please remember that premium payers are the source from which those dollars are ultimately derived,” he said.

The combined company would become the nation’s No. 3 health insurer behind UnitedHealth Group of Minneapolis and Wellpoint Inc. of Indianapolis, based on annual premiums. It also would control over 53 percent of the state’s insurance market, according to a 2005 report from the National Association of Insurance Commissioners.

Earlier this week an economist hired by Capital Blue Cross testified in Pittsburgh that the consolidated company would command a market share of more than 70 percent, a figure that includes the self-insured market. An economist for Highmark and Independence Blue Cross disputed that figure.

Ario, whose agency was given authority to approve the merger under a law signed by Gov. Ed Rendell last week, hopes to make a final decision by December at the earliest.

Topics Mergers Carriers Pennsylvania

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