7-15-2008

For businesses and individuals in Pennsylvania that keep getting socked with higher and higher health-insurance premiums, it's hard to find any upside to the proposed merger of the state's two largest Blue Cross health plans.

The same goes for the many fine doctors and hospitals that say they are at the mercy of the two Blue Cross giants, which dominate the insurance markets in the Philadelphia and Pittsburgh regions - but conveniently never compete against each other.

It appears that the only real winners in the proposed merger would be the Blue Cross executives, who will likely receive huge bonuses for combining the regional giants into a behemoth that will further dominate the health-insurance market statewide.

Here's hoping that state insurance Commissioner Joel Ario will truly place the interests of consumers, businesses, and health-care providers first in weighing the proposed merger.

Ario held public hearings last week in Harrisburg and Pittsburgh. The hearings move to Philadelphia on Tuesday at 9 a.m. at the Sheraton Center City, 201 N. 17th St.

Now is the chance for consumers to be heard. Rest assured, the Blue Cross executives and their lobbyists have been talking up the deal to key stakeholders.

Indeed, Philadelphia's Independence Blue Cross and Pittsburgh's Highmark Inc. contend that the proposed merger will bring substantial benefits for the commonwealth. Chief among them: continued subsidies from the merged company toward health care for the uninsured and a "minimal" tamping down of future insurance-rate increases.

However, there's nothing in the deal yet about rate reductions on premiums, or other tangible benefits for individuals and businesses struggling to pay steady double-digit increases in health premiums.

With or without the merger, funds for the uninsured would remain - given the tax benefits that come with being a nonprofit.

As for the nearly $1 billion in expected savings over six years, most of that looks to be going straight to the Blues' bottom line.

Chief among the many questions posed by this merger is whether the firms could squeeze greater economies from their union, freeing up funds that could reduce premiums.

There's no question these firms are hugely successful, with combined cash reserves of $5.5 billion. The two executives are well paid: Highmark chief Kenneth R. Melani earned $3.2 million last year, while Independence CEO Joseph A. Frick received $1.6 million. And while both Melani and Frick will keep their jobs at likely increased pay and benefits, the merger will save millions by eliminating 1,200 positions - nearly 7 percent of the 18,000 employees.

Not only is the upside lacking, this merger also could have a substantial downside if it hampers the already limited competition. An expert hired by a competing Blue Cross plan testified last week that the combined company would have a lock on more than 70 percent of the statewide health insurance market. A business rival said the new company would have even further political clout in Harrisburg over health-care policy.

The counterargument from Highmark and Independence is that they don't compete against each other now, so the merger won't change the landscape. When Commissioner Ario pressed them last week as to whether the companies might compete if the merger was denied, Melani claimed that Highmark simply couldn't break into the tough Philadelphia market. (Where are the antitrust investigators when you need them?)

If state officials ultimately conclude that the two companies can compete, that means the merger would indeed reduce competition in the state.

An even more troubling prospect would be a possible move to convert the merged Blues' operations to for-profit status. Such conversions often unlock huge value (read: stock options and bonuses for executives) that was created while the companies enjoyed years of nonprofit tax savings. Any for-profit conversion also threatens the Blues' social mission.

Frick and Melani say becoming for-profit isn't in the cards. If the state approves the merger, that pledge should be etched in stone.

It's at least good to hear Ario say that the impact on competition will be the most important consideration as insurance regulators consider the deal.

Consumers would have greater assurance their interests were paramount had Gov. Rendell agreed to name an independent advocate to review the merger. Ario's consumer credentials are solid, but he's sitting as judge and jury in this matter.

Other states facing similar sales or mergers have held trial-like hearings to size up the deal. Let's hope Ario's hearings are more than a dog-and-pony show.

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http://www.post-gazette.com/pg/08203/898342-35.stm

Case of the blues: Insurance merger threatens trouble for consumers

Monday, July 21, 2008

Pittsburgh Post-Gazette

The proposed merger of Pittsburgh-based Highmark and Philadelphia's Independence Blue Cross will keep the insurers robust and healthy, but it may not be as good for the rest of us.

Hundreds of people attended recent public hearings in Pittsburgh, Harrisburg and Philadelphia -- the last was on Wednesday -- where dozens of executives, economists, physicians and citizens addressed state Insurance Commissioner Joel Ario, who will have the final word on the subject.

If approved, the combined insurer would hold more than half of the state's market and become the third-largest health insurer in the nation, which the American Medical Association says amounts to a monopoly.

Highmark CEO Ken Melani and Independence's counterpart Joseph Frick contend the merger will allow the combined company to grow and compete against multistate insurers, and they say it won't hurt competition in the state because the two companies don't currently go head to head for business. Many of the speakers agreed with them, and the planned merger got a boost on Thursday when the U.S. Justice Department cleared it under federal antitrust law.

But how will the merger help patients whose premiums keep rising? Will it become more difficult for employers to negotiate better coverage for their workers? The insurers made no promises of rate reductions, improved availability of coverage or other obvious benefits for Pennsylvanians. And an estimated 1,200 stand to lose their jobs if the merger is approved.

Mr. Ario hopes to issue a decision by year's end, and he will continue to accept public input through the end of August. Anyone worried, as we are, about the health of the consumer in this deal should weigh in before it's too late. Comments including the writer's name, address and phone number can be submitted by e-mail to rbrackbill@state.pa.us. Detailed instructions are on the state Insurance Department Web site at www.ins.state.pa.us.

Health-care experts point to a looming crisis: 47 million uninsured; family premiums up 78 percent in six years - enough to price individuals and employers out of insurance - and medical care consuming an ever-larger slice of the U.S. economy.

Doctors, employers and insurers increasingly chart the link between rising health-care costs and common conditions such as diabetes and obesity. That is opening the way for electronic medical records and other systems that can keep track of patient health along with complex paperwork.

Meanwhile, insurance companies, hospitals and doctors' practices all are consolidating to achieve greater clout even as many call for a single-payer system.

It's a big issue, but this week in Philadelphia, there's an opportunity to look at it through a very local lens as speakers line up to testify at the Pennsylvania Insurance Department's hearings on the proposed merger of Independence Blue Cross and Highmark Inc.

The merger, an example of consolidation, would create the state's largest insurer. One reason the two Blues want to merge? To save money on advanced technology.

But hospitals and doctors worry about the potential clout of a merged organization as they bargain over reimbursements. Businesses want stabilized premiums. Advocates seek help for the uninsured and better care for all.

The drill: Public hearings on the proposed merger are scheduled at the Sheraton Center City, 201 N. 17th St., on Tuesday from 9 a.m. to 5 p.m. and 7 p.m. to 9 p.m., and on Wednesday from 9 a.m. to conclusion.

Watch the hearings at http://go.philly.com/insurance. The link will be live only during the hearings on Tuesday and Wednesday.

HARRISBURG - When it comes to their proposed merger to create the state's largest insurer, executives at Independence Blue Cross and Highmark Inc. insist they won't play hardball when it comes to negotiating with doctors and hospitals over payments for their services, despite their market clout.

But the head of the Pennsylvania Medical Society, who testified yesterday at Insurance Department hearings on the merger, isn't buying it.

"It's like, 'Yeah, I'll love you in the morning,' " society president Peter Lund quipped in an interview after his testimony.

At the Lehigh Valley Hospital near Allentown, where there are several insurance companies, including Highmark, competing to include doctors and hospitals in their networks, Highmark pays $36,000 for a heart-valve operation.

But at Hamot Hospital in Erie, where Highmark is the dominant insurer, the reimbursement is $26,000, he said. That's the kind of negotiating power he thinks the two companies will have statewide if they merge.

Pennsylvania's insurance commissioner, Joel Ario, pressed the Blues yesterday on competitive issues.

Ario asked why, if Independence Blue Cross sells insurance through its AmeriHealth subsidiary in New Jersey, it doesn't try to sell insurance under a similar subsidiary in Pennsylvania.

"The investment that would be required to build a brand statewide" would detract from Independence Blue Cross' business in Philadelphia and the four surrounding counties, Independence chief executive Joseph A. Frick said.

Ario asked whether IBC's reluctance to compete statewide shows that the dominance of the Blues makes entry into the state by other companies very difficult.

Highmark chief executive Kenneth R. Melani countered that a relatively new competitor in Highmark's core Pittsburgh territory, UPMC Health Plan, has added more than 1.2 million subscribers in 12 years. Highmark provides coverage for 4.6 million in western and central Pennsylvania and the Lehigh Valley.

Among those speaking in favor of the merger yesterday was Bruce Schwartz, president of Columbus Supply House, a Cumberland County distributor of cleaning services and products. His company offers Highmark insurance, does business with Highmark and participates with the company in charitable works.

He worries that if the merger doesn't go through, the insurers "might become a likely acquisition target" for big for-profit out-of-state insurance companies.

"Such an outcome would prove detrimental for small businesses and charitable organizations," he said.

Also testifying were several legislators, including State Sen. Donald White, a Republican from Western Pennsylvania who heads the Banking and Insurance Committee.

"I'm extremely skeptical that long-term benefits will come from this merger," he said.

HARRISBURG, Pa. - A Pennsylvania state senator is questioning whether the proposed merger of the Pennsylvania's two largest health insurers will have long-term benefits for consumers.

Sen. Don White said Thursday the planned consolidation of Independence Blue Cross and Highmark Inc. would make the state's insurance market less competitive.

The Senate Banking and Insurance Committee chairman was among the people testifying at a hearing in Harrisburg before state Insurance Commissioner Joel Ario (AH'-ree-oh).

Rep. Frank Dermody says he supports the merger. The Allegheny County Democrat says a consolidation wouldn't affect competition because the two companies already operate in separate regional markets within Pennsylvania.

HARRISBURG, Pa. - State lawmakers, doctors and health care industry executives clashed Thursday 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.

"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 Thursday.

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