Blues' decision cost Rendell some leverage

Less than 24 hours after he began his second term as governor, Ed Rendell stood in front of a bank of microphones to announce the sweeping health initiative that he envisioned as the hallmark of his second term.

There would be coverage for the uninsured, cost containment, and quality standards, Rendell said at the news conference in 2007.

No one thought his comprehensive plan would be easy to achieve - not with Republicans in power in the legislature and Rendell paddling toward lame-duck status.

But Rendell did have one lever: Just as he had two years earlier, he might be able to apply funding pressure to Independence Blue Cross and Highmark Inc.

The two huge nonprofits wanted badly to merge - and everybody knew it, though nothing was official, yet.

Former consumer advocate Joel Ario came from Oregon to head the Insurance Department as a Rendell appointee in June 2007. He soon saw the state's insurance market as flawed, dominated by two huge companies that wanted to merge and get even bigger.

There had to be a way to bring in more insurers so there would be pressure to lower premiums for subscribers and to create a better bargaining position for doctors and hospitals.

Ario also had a lever - the merger. He would be the "decider" on the question of an IBC-Highmark merger.

If the two companies would agree to a strong measure that would open up competition, he would grant the merger. Otherwise, no.

Independence and Highmark chose "no" and withdrew the merger application.

With it went some of the leverage the Rendell administration had, at least for the moment.

But Ario is not discouraged.

"There is now an opportunity to achieve much of that through legislation," he said, referring to his ideas to improve the insurance market.

Ario wasted no time working that angle. In his news conference after the merger was prevented, Ario praised Sen. Don White, a former insurance broker, who had opposed the IBC-Highmark plan. White, a Republican from Indiana County, heads the Senate Banking and Insurance committee, where many of Ario's proposals will begin.

"I will go back to Sen. White," Ario said. Legislation could affect all companies, not just Independence and Highmark, he said.

As for Rendell, the governor has had little traction on his health plan in two years, and prospects for it look grim in a worsening economy.

More than a million Pennsylvanians are now uninsured, and state officials expect the waiting list for low-cost, state-funded adult insurance to double to 282,000 by June.

In 2005, two years before Rendell started his second term, the governor proudly announced that Independence Blue Cross, Highmark and two other Blue Cross companies would spend nearly a billion dollars through the end of Rendell's term in 2010 to cover the uninsured via his Community Health Reinvestment program.

They agreed to the deal at the same time Rendell's Insurance Department helped Independence and Highmark defuse controversy from critics outraged that the two nonprofits had amassed a $4 billion surplus while premiums remained high and so many lacked insurance.

So, when Independence and Highmark applied for their merger in April 2007, just months after Rendell announced his health initiative, they agreed to extend the deal through 2013 as part of their merger bid.

Last month, on the day the two companies withdrew their application, Rendell visited Philadelphia for an unrelated news conference.

Despite a deep tan, he looked tired.

Throughout the application process, the two insurers had hinted that if they could not merge, they would not continue the $120 million a year they together spend on the deal after 2010.

After all, Independence Blue Cross chief executive officer Joseph Frick asked recently, is it fair that the Blue plans have to shoulder the cost while for-profit companies, such as Aetna Inc., contribute nothing?

"I think they are posturing," Rendell said, speaking of Independence and Highmark as he left the news conference.

"Remember, there's still the surplus issue."