Pennsylvania ponders final comments on proposed insurance deal

The end may be near for the nearly two-year wrangling over the merger of two large nonprofit health plans in Pennsylvania.

With its deadline having passed for the public to submit comments on the proposed Highmark-Independence Blue Cross merger, the Pennsylvania Insurance Commissioner's office says it expects to give, or not give, its blessing by Jan. 27, 2009.

Between now and then, Pennsylvania legislators will have their chance to weigh in one final time, and the commissioner's office will review public and lawmaker comments as it considers the merger, which was first announced on March 28, 2007.

Independence, based in Philadelphia, and Highmark, based in Pittsburgh, want to combine to create a Blues plan with an estimated 8 million members and $23 billion in annual revenue.

The combined company would be the third-largest Blues plan in the country by membership.

The U.S. Justice Dept. has given the merger the go-ahead, leaving final approval to Pennsylvania Insurance Commissioner Joel Ario.

Lots of public comments

After hosting a series of hearings this summer and receiving hundreds of pages of public comment, the department cut off the official public comment period Oct. 14.

In a note submitted that day, Henry Allen, senior attorney for the American Medical Association's Private Sector Advocacy unit, argued that the merger should be blocked based on the negative impact on potential competition. The letter was written in response to a request from Ario after Allen's testimony on behalf of the AMA at the Philadelphia public hearing.

The Pennsylvania Medical Society also spoke out against the merger, saying it should not go through unless Highmark and Independence can demonstrate a clear benefit to members, purchasers and health care professionals.

Also in the final weeks of comment, a competing Pennsylvania Blues plan, Harrisburg-based Capital Blue Cross, submitted a letter arguing that Highmark has been using whichever definition of the insurance market it chooses to suit its purpose, even conflicting directly with 1996 filings for the merger that created Highmark.

Assuming a statewide rather than a regional market for insurance would give a combined Highmark-Independence an estimated 70% market share in Pennsylvania, which is too high to be approved under state law, Capital said.

In a letter filed in response, Highmark's attorneys argued that the definition of the market in Pennsylvania is complex and that there was no reason not to discuss both regional and state markets when examining the proposed merger.

The definition of market is vital to the insurance commissioner's decision because state law discourages dominance over single markets.

Experts disagree whether Highmark, if not for the merger, would be likely to try to compete with Independence in and around Philadelphia. If the answer is yes, observers say, then potential competition would suffer under a merger, which is one argument against the deal.

Highmark CEO and President Kenneth Melani, MD, has said the firm has no intention of entering the Eastern Pennsylvania market if the merger does not go through.

But some experts question if the current market situation or Dr. Melani's assurances are enough, or whether his intentions matter.

Allen argued in part in his filing that what matters is the perception other health insurers have that Highmark could move into that market.

The possibility of competition helps consumers, and a Highmark-Independence merger would remove that benefit, Allen wrote.

"The basic fact is that Highmark has always held a unique position in Pennsylvania as a firm poised and ready to enter [Independence Blue Cross'] market," he said.