Capital Blue Cross: Merger Would End Most Competition

CEO questions whether $1 billion payment is worth "mortgage"

The proposed merger of Highmark and Independence Blue Cross (IBC) would effectively end health care insurance competition in most of Pennsylvania, Capital Blue Cross CEO and President Anita Smith told the Senate Banking and Insurance Committee yesterday (January 30).

Speaking at a public hearing on the merger, Smith asked committee members to consider whether the $1 billion "one-time benefit" to the Commonwealth would be worth forever losing the benefits of statewide competition.

The committee also heard testimony from James R. Buckley, President of the Delaware Valley Health Care Coalition (DVHCC), who urged the Commonwealth to consider enacting price control legislation to promote competition in the health insurance marketplace.

"Throughout this series of hearings, we have tried to remain objective and continue to welcome the opinions and viewpoints of any and all interested parties," said Banking and Insurance Committee Chairman Senator Don White (R-41st). "We appreciated hearing the thoughts of Mrs. Smith and Mr. Buckley on the proposed merger and how they envision its affect on the health care market. Maintaining a competitive health care insurance marketplace has been my main concern throughout the committee’s consideration of this merger."

The public hearing opened with a presentation by Smith, who said the Highmark-IBC merger followed expiration of a 10-year non-competition agreement between the two companies.

"Great attention has been paid to the lure of this transaction – a purported $1 billion, one time economic benefit to the Commonwealth. I know this committee will carefully review that figure," Smith said. "But it should carefully review what it would give up for that money. Pennsylvania's health insurance market will account for more than $500 billion over the next decade alone. So, we respectfully pose the question again – is a one-time payment worth mortgaging the competitive future of this enormous and vital market? We believe the answer is no.

"But what is beyond debate is this: to approve this merger without conditions would forever close the door on a competitive statewide health insurance marketplace," Smith continued. "Make no mistake, this merger is the Commonwealth’s final opportunity. We either nurture vibrant statewide competition, or we forever preclude it."

Buckley said the DVHCC, a group of 92 Union Multi Employer Health and Welfare Funds representing more than 400,000 participants, spent about $1.5 billion for medical care during 2007.

"Competition in the health care system occurs at the wrong level, over the wrong things, in the wrong geographic markets, and at the wrong time," Buckley said, in testimony to the committee. "Competition has actually been all but eliminated just where and when it is most important, particularly in this Commonwealth where the status quo favors a 'closed system.' Legislation that promotes a system of equitable medical charges and payments for all would promote competition and result in more economical and efficient medical care."

Buckley said that in the current environment, where patients' treatments are determined by the networks they participate in, network providers are all but guaranteed the business - no matter what the quality of services delivered. He suggested that Pennsylvania develop a reimbursement system similar to that of Workers' Compensation programs, which fixes reimbursements based on a percentage or multiple of the regional Medicare allowance for the procedure/service in question.

"Instead of allowing the major health insurers to use their oligopoly power to receive preferential pricing and profits, healthcare providers should be able to charge reasonable prices to all healthcare consumers," Buckley said. "The present system unfortunately provides unjustified discounts to the largest insurers and unreasonable mark-ups to the smallest healthcare payers. In the process, it rewards the majors with profitable, yet unjustifiable discounts, which all the other purchasers of health services subsidize."

Frank Sirianni, president of the Pennsylvania State Building and Construction Trades Council, raised concerns about the impact the proposed merger could have on competition in Pennsylvania and the use of "surplus" money for government programs.

"I am deeply concerned about the lack of competition in the state. Reducing the number of providers reduces competition which leads to higher prices," Sirianni said. "The consumer protections are very important in this merger. The actions taken by this committee and by the Senate to have oversight on this merger are well founded and we support that. We oppose the use of the Blues surplus for the Governor's CAP (Cover All Pennsylvanians) program. We feel those are premiums that were paid by our members, and if there is a surplus, it should be used for lowering premiums or creating better benefits for our members. We need to know who in the state is protecting the consumers. I believe, Mr. Chairman, your committee is trying to do just that."

Contact:

Joe Pittman
(717) 787-8724