Pennsylvania’s Blue Cross Insurers Withdraw Merger Plan

Pennsylvania's two largest health insurers -- Independence Blue Cross and Highmark Blue Cross Blue Shield -- on Wednesday withdrew their plans to merge about one week before the state was set to make its decision on the plan, the Philadelphia Inquirer reports. The proposal would have created the largest health insurer in the state and one of the largest in the U.S., according to the Inquirer. The two insurers contended that a partnership would have resulted in nearly $1 billion in savings over three years. Those savings would have been used to help fund an initiative by Gov. Ed Rendell (D) to provide health coverage to uninsured state residents (Von Bergen/Couloumbis, Philadelphia Inquirer, 1/22).

Members of both insurers' boards met on Wednesday to discuss issues concerning their proposed merger. According to the Inquirer, while the state Insurance Department legally could not render an official decision on the merger until Tuesday, the agency privately informed the insurers that the merger would not be approved unless the companies specified how the newly merged company would use the "Blue" trademark. Currently, both companies use the Blue trademark for marketing purposes (Von Bergen/Couloumbis, Philadelphia Inquirer, 1/21). The state Insurance Department had proposed that the new merged company stop using either the "Blue Shield" trademark or "Blue Cross" trademark, which would have allowed another insurer to enter the Pennsylvania market using a "Blue" trademark. The insurers opposed the idea.

Comments
Independence CEO Joseph Frick and Highmark CEO Kenneth Melani in a statement on Wednesday said, "We have stated repeatedly that we would not give up one of our brands. We spent more than 70 years developing our brands' value in our markets, and they are an integral part of our corporate identities and reputation." They added that "in recent days, it became clear to us that despite the well-documented advantages of the consolidation for our customers and our communities, the Insurance Department would not approve the transaction, because of its belief that there would be an adverse impact on competition. We fundamentally disagree: We have shown that the combination would not lessen competition in our markets."

Gov. Rendell in a statement said, "I think the merger was well-meaning by two great companies who are great corporate citizens, but I think it would have reduced competition in Pennsylvania." State Insurance Department Commissioner Joel Ario said, "We were prepared to issue a disapproval order on Jan. 27, but this withdrawal smooths the process and allows all parties to focus on the challenges we all face in addressing the larger health care crisis" (Philadelphia Inquirer, 1/22).

Editorial
"The collapse" of the proposed merger "represents a major victory for consumers," an Inquirer editorial states, adding, "Neither they nor the business owners who pay premiums for their employees had much to gain from the deal, but the potential risks were real." According to the editorial, "Despite the merger's promised $1 billion in savings over several years, the insurers said those savings would have minimal impact on premiums." The editorial continues, "Balanced against any short-term gain from stabilizing premiums or continued funding of efforts to aid the uninsured, Blues subscribers could expect more double-digit premium hikes down the road." In addition, had the plan been approved, the Blue trademark "would have had a virtual stranglehold on nearly 70% of the state's health-insurance market," according to the Inquirer.

The editorial adds that from the start of the proposed deal it "seemed focused on putting a lid on competition that's good for consumers, rather than expanding it." State officials have "done consumers a great service" by intending to reject the plan, according to the editorial (Philadelphia Inquirer, 1/22).