HARRISBURG - If Independence Blue Cross and Highmark Inc. had agreed to let another "Blue" company sell health insurance in the Philadelphia market to provide competition, their proposed merger probably would have been approved, Pennsylvania Insurance Commissioner Joel Ario said yesterday.

His comment, at a news conference here attended by more lobbyists than reporters, came on the day after the two health insurers withdrew their merger request.

"The simplest and most direct" way to add competition to the "Pennsylvania market would be to create 'Blue on Blue' competition," Ario said, referring to the popular Blue Cross Blue Shield trademarks.

Ario had planned to reject the merger because he felt it would have discouraged competition from other insurers. More competition, he said, means more choices for consumers and fairer reimbursement deals for hospitals and doctors.

"Bigger is often better, but it's not always better. And in this case, it would have been bad for the consumers," Ario said yesterday.

The merger would have created the largest health insurer in the state, with a 51 percent market share, and one of the largest in the nation, with annual premiums of $17 billion.

Ario agreed with the companies' assessment that operating efficiencies from a merger would give them an extra $1 billion over six years. And he said that it would have been convenient to spend some of that money, as the companies offered, to provide health insurance for the poor.

But, he said, "when you compare the public benefits with" competitive issues, "it wasn't a close call."

The insurance companies withdrew their merger application chiefly because they could not stomach Ario's demand for more Blue competition.

"I fundamentally don't understand their perspective," Ario said.

The Blues are the popular Blue Cross and Blue Shield trademarks, controlled by the Blue Cross Blue Shield Association in Chicago.

Independence Blue Cross in Philadelphia is a Blue Cross company. Pittsburgh's Highmark uses the Blue Cross in Western Pennsylvania, and Blue Shield trademark across the state.

For approval of the deal, Ario wanted the combined companies to allow another Blue-branded insurance company, such as Harrisburg's Capital Blue Cross, to use one of those trademarks.

While that would be complicated in other regions in the state, Ario said, it would be relatively easy in the Philadelphia area, where Highmark owns the Blue Shield trademark, but does not use it to market health insurance.

"I think there would have been many competitors in the marketplace who would have been interested" in entering the Philadelphia market, Ario said.

Forget it, the executives of the two companies said.

"The brand is our most significant asset," Independence Blue Cross chief executive officer Joseph Frick said in public hearings in July. "I can't imagine any price that would enable . . . Independence Blue Cross to consider giving up such a valuable investment."

During those hearings, the witnesses detailed other ideas about what would help mitigate the effects of the merger: More transparency in costs, oversight into reimbursement rates, and unbundling of services so more types of insurance companies could compete.

Ario said he had figured some of those could be attached as conditions to the merger, but now some of those ideas will have to be legislated.

Contact staff writer Jane M. Von Bergen at 215-854-2769 or jvonbergen@phillynews.com.