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.
For the most part, providing health insurance “is a labor-intensive rather than capital-intensive industry,” Burns said. “As a result, there are minimal economies to reap as scale increases.”
Often, health insurers merge or make acquisitions simply because the company executives like the idea of expanding, Burns said.
Another reason “is that mergers serve to reduce the number of competitors in a market by at least one,” Burns said.
Although Highmark and Independence Blue do not compete with each other very often, the deal could help Highmark eventually become the only Blue Cross plan in Pennsylvania, Burns said.
Although the combined company might not reduce competition in Western and Eastern Pennsylvania, it might move on to enter Central Pennsylvania markets and reduce Blue Cross and Blue Shield competition there, Burns said.
The combined company also might keep UnitedHealth and other out-of-state health insurers from entering Pennsylvania or expanding there, Burns said.
Another witness, Pennsylvania state Sen. Don White, chairman of the state Senate Committee on Banking and Insurance, said the Pennsylvania Department of Insurance now lacks the laws it needs to review mergers of Blue Cross and Blue Shield plans.
White said he has introduced a bill, Senate Bill 550, that would give the Pennsylvania Department of Insurance oversight power over mergers involving Blues plans and other nonprofit health insurers.
Pennsylvania does not have a state antitrust law, but the state attorney general can take action under the federal antitrust law, White added.
The Federal Trade Commission and the U.S. Justice Department should scrutinize the proposed Highmark-Independence Blue deal to see how it might affect competition in the Pennsylvania health insurance market, White said.
“There is no better regulator than a competitive marketplace,” White said.