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April 10, 2007 at 07:53 PM
The Senate Judiciary Committee is studying competition levels in the health insurance industry.
The committee convened a field hearing Monday in Philadelphia to review recently announced efforts by Highmark Inc., Pittsburgh, a nonprofit Western Pennsylvania Blue Cross and Blue Shield licensee, to acquire Independence Blue Cross, Philadelphia, the nonprofit Blue Cross licensee for Pennsylvania.
Completing the deal would create one of the largest health carriers in the United States, and the combined company could end up providing or administering health coverage for more than half of all Pennsylvania residents.
In recent years, the U.S. Government Accountability Office has published reports showing that one carrier, often a Blue Cross and Blue Shield licensee, dominates the health insurance market in many states.
Independence Blue President Joseph Frick told Senate Judiciary Committee members that completing the proposed Highmark-Independence Blue deal would help the combined company save about $1 billion, hold rates down, expand access to health coverage, and continue the Highmark and Independence Blue tradition of providing nonprofit health coverage for Pennsylvania residents.
“There has been much speculation about what our ultimate plans are,” Frick said, according to a written version of his testimony posted on the Senate Judiciary Committee Web site. “I assure you that both of our boards and executive teams are committed to our not-for-profit status as one of the key factors that differentiates us in our local communities and distinguishes us from our publicly traded competitors.”
Moreover, Highmark and Independence operate in separate markets, with virtually no overlap, Frick said.
Completing the deal would help the combined company increase the level of competition in Pennsylvania by creating a company that would be better equipped to butt heads with companies such as Aetna Inc., Hartford and UnitedHealth Group Inc., Minnetonka, Minn., Frick said.
“These are not small Mom and Pop insurance companies whom we would overshadow,” Frick said.
Lawton Robert Burns, a health management professor at the University of Pennsylvania, testified that Highmark and Independence Blue might have a hard time achieving their cost saving goals, because companies involved in health plan mergers rarely end up saving much money, and Highmark and Independence Blue already have said they believe the combined company would maintain separate headquarters in Pittsburgh and Philadelphia.
“There thus seems to be little integration or consolidation of the infrastructure of the health plans,” Burns said. “As a consequence, it is difficult to envision where any savings and efficiencies will spring from.”
Studies have shown health maintenance organization health plans tend to reach an efficient scale at about 100,000 enrollees, Burns said.
