Senate panel: Set limits on merged Blues

If Pennsylvania's insurance commissioner decides to approve the proposed merger between Independence Blue Cross and Highmark Inc., he should impose a raft of conditions designed to limit their market power.

So says the Republican-led Senate Banking and Insurance Comittee in draft resolutions scheduled to come for a committee vote tomorrow.

The decision on whether to approve the merger rests with Commissioner Joel Ario alone. But the committee has lots of opinions on what Ario should do, starting with a plea that he reject it.

"For him to recommend that this merger go through, it's unconscionable," said Sen. Donald J. White, the committee chairman and an insurance broker from Indiana, Pa.

White, a Republican, said he believed the merger of Philadelphia-based IBC and Pittsburgh-based Highmark, which will create the largest health insurer in the state, will so limit competition that hospitals and doctors will have little voice in fees and that insurance will become unaffordable to consumers.

"In my part of the state, it's Highmark or nothing," White said. "The hospital administrators would complain to me that there is no negotiation. Highmark tells them. That's what started all this for me."

Independence Blue Cross spokeswoman Elizabeth Williams disagreed that the merger would lessen competition.

"Our subscribers will continue to have the same wide variety of choice from a competitive health insurance market as they have today," she said.

Highmark spokesman Michael Weinstein said Highmark concurred with Independence Blue Cross' comments.

Williams said the insurer had not yet seen the draft, but pointed out that Ario's decision was the key one.

"We are pleased that many health-care industry stakeholders, including a number of public officials, have publicly supported the consolidation, reaffirming the companies' belief that the transaction will benefit our subscribers, health-care providers and Pennsylvania communities," she said.

Although the majority of committee members were against the merger, they suggested 11 conditions on the deal in the event that Ario may approve it anyway.

His decision can come no earlier than Jan. 27, according to legislation passed in July that gives the legislators the option to weigh in.

The first condition, spelled out in the draft resolution provided to The Inquirer, relates to competition. It says that if the two companies merge, they should not be allowed to enter into contracts with hospitals, doctors or consumers that include "most favored nation" or "all products" clauses.

Under a so-called favored-nation clause, an insurer can insist that the hospital give it the lowest price it charges any other insurer. That cuts into the providers' profit margin.

All-products clauses require that companies or consumers who buy one type of insurance, such as major medical, from one carrier have to buy any other types of insurance they want, such as dental, vision or prescription, from the same carrier.

That type of clause, which the committee says should be nixed, means niche companies would be cut out.

Removing the clause could undercut one of the advantages the companies see in their merger: an ability to cross-market their current specialties. Highmark subsidiaries, Concordia and Davis, sell dental and vision insurance. Independence Blue Cross has a prescription company, FutureScripts L.L.C.

Other conditions in the draft recommendations include requiring dispute resolution with providers; requiring Blues executives to report all compensation; preventing the new company, which would be a nonprofit, from converting into a for-profit company without specific legislation.

In New Jersey, the state's largest nonprofit Blue, Horizon Blue Cross Blue Shield of New Jersey, is seeking for-profit status.

In arguing for their merger, Highmark and Independence Blue Cross say the merger will give them the strength to compete with huge, well-capitalized national companies such as Aetna Inc. and UnitedHealth Group Inc.

But Pennsylvanians, they say, will also see benefits. The two Blues have promised that efficiencies from the merger will spin off $1 billion in savings in six years. Some of the savings would help keep the administrative portion of premiums stable for three years and some would help continue to fund programs that provide coverage for the uninsured.

The committee says that premiums should remain stable for five years and that the money the two Blues plan to spend to continue to fund programs for the uninsured should not count as a merger benefit.