Facing a sharp drop in customers for its health plans, Highmark Inc. acted to cut costs yesterday by terminating 209 of its 11,000 workers amid speculation that more layoffs may be in the offing.

Spokesman Michael Weinstein would not rule out further staff reductions, and some employees said another round of cuts could come as early as July at the region's dominant health insurer and one of its largest employers.

"There are a number of issues we have to resolve as a company ... before we can get a better gauge of what our staffing needs are going to be moving forward," Weinstein said.

He said slightly more than half of yesterday's terminations came at Highmark's Downtown headquarters, where 4,600 had been employed. The bulk of the others, about 95, came from the insurer's Camp Hill, Cumberland County, offices.

Highmark lost 400,000 members last year, or roughly 9 percent of overall enrollment in its health plans.

Rumors of possible cuts have been on the wind for several weeks. Although yesterday's layoffs weren't nearly as high as the 600 to 1,000 job losses insiders had speculated about, some employees were surprised to be among those let go.

"I knew [the reduction] was coming. I just didn't think I was going to be one of the people," said one supervisor who asked that his name not be revealed.

He said his performance reviews during nine years with the company had always been glowing and that 14 other positions had already been eliminated from his department by attrition. Highmark said in February it had eliminated 190 unfilled positions.

Some employees said they were angry that Highmark was spending $1 million for a sign on top of its building and is hiring independent contractors to do jobs within the organization that they maintain were being performed for less money by staff members who were laid off.

Highmark spokesman Weinstein couldn't confirm the cost of the sign or provide any details concerning outside contractors, but noted the sign had been in the works for more than a year and was justified "in today's competitive market where a sign on the building creates a reminder of our presence in the market."

Highmark's layoffs come as runaway health-care costs have caused companies nationwide to shift more of the costs of coverage to their employees and, in some instances, to drop coverage entirely. A public backlash has put health care higher on the list of issues in this year's presidential campaign.

Highmark for several years has had to defend pricing increases that have exceeded national averages, blaming them on greater utilization of medical service by an aging Western Pennsylvania population.

Both customers and employees said nonprofit Highmark's premiums, particularly in the small group market, have become increasingly uncompetitive with those of for-profit companies. The insurer also has lost some large national accounts, including Waste Management and bankrupt Adelphia Communications Corp.

Among the issues Highmark said must be resolved before it can assess future staffing needs are questions about its financial surplus, pending rate increases and whether state legislators will change Pennsylvania laws to make nonprofits more competitive with for-profit carriers in the small group health plan market.

Highmark claims the for-profits operate under rules that enable them to cherry-pick less risky groups, sticking the Blues with higher-risk members for which it must charge higher prices. Cliff Shannon, who heads the SMC Small Business Councils group that helps some 5,000 member companies purchase health insurance at group rates, agrees.

Shannon noted that Highmark and other Blue carriers were disadvantaged because for-profit carriers are permitted to survey the health risks of companies with up to 49 employees before quoting premiums. To avoid the riskier small groups, the for-profit insurers often make quotes that are double Highmark's to effectively lose the business, Shannon said, adding that he estimates that Highmark lost 25 percent of small group enrollment last year.

Highmark and other of the state's three other nonprofit Blue Cross carriers also are awaiting determinations on whether the state Insurance Department will force them to shed some of their financial surpluses. Highmark has filed numerous requests for rate increases that it said were being held up while the Insurance Department resolves the surplus issues.

The Insurance Department denied premium increases on two Highmark health plans and a handful filed by the state's other Blues late last year, saying it needed additional information about surpluses before granting them. Highmark has since filed for rate increases on some other health plans.