Highmark to merge with Blue Cross in NE Pennsylvania
By Alex Nixon
Published: Tuesday, Feb. 18, 2014, 3:00 p.m.
Highmark Inc. would expand its dominance of the state's health insurance market if state regulators approve its proposed merger with Blue Cross of Northeastern Pennsylvania.
The deal, announced on Tuesday, marks Highmark's first merger attempt with a Pennsylvania Blue Cross company since a plan to combine with Independence Blue Cross of Philadelphia fell apart in 2009.
It occurs as the health insurance industry consolidates to deal with new regulations and as Highmark faces increasing competition on its home turf of Western Pennsylvania.
“Health care is changing at an incredible pace,” Highmark CEO Bill Winkenwerder said, noting that the merger would give Blue Cross customers in northeastern Pennsylvania access to more products at better prices.
The smallest of the state's four Blue Cross companies, Blue Cross of Northeastern Pennsylvania would give Highmark about $750 million in annual revenue and $304 million in reserve. Highmark had $15.2 billion in revenue in 2012 and a reserve of $4.1 billion at the end of 2012.
Bringing the companies together would be good for northeastern and northcentral Pennsylvanians and the communities in which Blue Cross of Northeastern Pennsylvania operates, Winkenwerder said.
The state's largest health insurer, with 4.3 million members, Highmark would gain 545,000 subscribers in 13 counties if Insurance Commissioner Michael Consedine signs off. Highmark could sell products in 62 of the state's 67 counties — everywhere outside the five-county Philadelphia region.
Highmark merged with Blue Cross companies in West Virginia and Delaware, and expanded into delivery of medical services with the 2013 purchase of the No. 2 hospital system in Pittsburgh. The company's purchase of West Penn Allegheny Health System and formation of the seven-hospital Allegheny Health Network led rival UPMC to refuse renewal of its reimbursement contract with Highmark.
Highmark could lose insurance subscribers in Western Pennsylvania to competitors that will offer in-network access to UPMC after this year. Blue Cross of Northeastern Pennsylvania members would be out-of-network at UPMC hospitals and doctors in 2015 when UPMC's reimbursement contract with Highmark expires, UPMC spokesman Paul Wood said.
Highmark and Blue Cross of Northeastern Pennsylvania said they submitted a request to the Insurance Department on Tuesday that details the deal.
“The highest priority in our review of this application is to see that consumers will be protected and the impacted health insurers remain financially strong and the market competitive,” Consedine said.
The department intends to hold a public hearing in northeastern Pennsylvania.
In their agreement, the companies said Blue Cross of Northeastern Pennsylvania will donate $100 million to an unspecified charitable foundation to benefit health and economic development in that section of the state.
Highmark said it will maintain operations in Wilkes-Barre and “will make efforts to maintain local staffing levels.” The smaller Blue Cross company employs about 750 people; Highmark's insurance business employs about 20,000.
Highmark and Independence abandoned their deal in 2009 because they weren't willing to comply with conditions regulators placed on the deal to maintain a competitive marketplace. That's not likely to be a concern in this case, said Mark Pauly, a health economist at the University of Pennsylvania's Wharton School. The companies don't compete with each other, so competition won't be reduced, he said.
“I'd be surprised if there would be antitrust objection to this,” Pauly said.
The main competitors to Blue Cross companies such as Highmark and Blue Cross of Northeastern Pennsylvania are national for-profit insurers, such as Aetna Inc., Cigna Corp. and United Healthcare, he said.
Pennsylvania is unusual among states for having four nonprofit Blue Cross companies. Only five other states have more than one; there are 37 Blue Cross companies across the country. Several companies, most notably Anthem Blue Cross, are building multistate companies through consolidation.
Blue Cross companies with small geographic territories “can be problematic,” Pauly said. “If you're stuck in a small area, you can't spread your overhead across a large number of subscribers.”
Highmark and Blue Cross of Northeastern Pennsylvania have existing partnerships. Blue Cross of Northeastern Pennsylvania uses Highmark's information technology systems for claims processing. The companies jointly own First Priority Health, an insurance subsidiary that sells group plans to companies in northeastern Pennsylvania. They partner on Medicare Advantage plans sold to seniors there.
Alex Nixon is a Trib Total Media staff writer. Reach him at 412-320-7928 or firstname.lastname@example.org.
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