Highmark seeks to merge with Blue Cross of Northeastern Pennsylvania

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Three months after Highmark announced that it would seek a "stronger affiliation" with Wilkes-Barre's Blue Cross of Northeastern Pennsylvania, the nature of that affiliation has been revealed: The two health insurers want to join forces.

The proposed merger, if it's approved by the state, would extend Highmark's geographic reach and would instantly add about 550,000 members in 13 northeastern counties to the Pittsburgh insurer's existing membership. Together, the two companies would have about 5 million policyholders -- including Highmark's Delaware and West Virginia customers -- with revenues of nearly $18 billion.

The companies announced their merger intentions Tuesday afternoon, and have submitted a merger application to the state, which will publish the application online sometime today.

A merger would reduce the number of nonprofit Blues operating in the state from four to three -- Highmark, Capital BlueCross of Harrisburg and Philadelphia's Independence Blue Cross.

The multiple Blues carriers make Pennsylvania an outlier among states, which are typically served by just one Blues insurer, thanks to years of intrastate and cross-state mergers -- such as the ones that allowed Highmark to take control of Blue Cross Blue Shield affiliates in Delaware and West Virginia, said Tom Tomczyk, director of the health and productivity division at Pittsburgh's Buck Consultants branch.

"Highmark's had a footprint in that area for a while," he said. The merger, he said, makes sense.

The two Blues have had a working relationship for years: In 2005, Highmark invested $34 million in two subsidiaries of Blue Cross of Northeastern Pennsylvania, a move that gave Highmark a 40 percent stake in the certain HMO and PPO health plans sold in that insurer's territory. The Wilkes-Barre insurer also uses Highmark for claims processing, and the two partner on Medicare Advantage offerings.

In a statement issued Tuesday, Insurance Commissioner Michael Consedine said, "The highest priority in our review of this application is to see that consumers will be protected and the impacted health insurers remain financially strong."

The proposed merger comes five years after a merger between Pittsburgh's Highmark and Independence Blue Cross was spiked by the state, on the grounds that the merged company would have too much Pennsylvania market share.

Tuesday's announcement would seem to leave IBC and Capital to fend for themselves, for now.

"I think they gotta feel some pressure," Mr. Tomczyk said. "Maybe they'll have to think about pooling resources" as a defensive move.

In joint statements, the CEOs of Highmark and Blue Cross of Northeastern Pennsylvania said the proposed merger would create efficiencies for both outfits.

Highmark CEO William Winkenwerder Jr. said, "Health care is changing at an incredible pace. This merger will enable BCNEPA to continue to improve the quality [of] health care across its region while taking advantage of Highmark's resources."

The agreement stipulates that Highmark would keep a "significant workforce in northeastern and north central Pennsylvania," and would "make efforts to maintain local staffing levels."

Bill Toland: btoland@post-gazette.com or 412-263-2625. First Published February 18, 2014 2:19 PM

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