A company hired by the state to review the proposed health insurance merger of Pittsburgh's Highmark Inc. and Independence Blue Cross of Philadelphia has found that "there is a distinct possibility that Highmark would enter southeastern Pennsylvania absent the consolidation going forward."

That's ammunition for opponents of the merger, who say the policy-holding public would derive greater benefits from direct competition between the two insurers than from a combination of the two, which would create one of the largest health insurers in the United States.

Economists for LECG Inc., in a 192-page report released yesterday, also said there was a good chance that the "expected benefits of entry [into IBC's market] outweigh the maximum benefits from consolidation claimed by Highmark and IBC," especially if the competition and its benefits to consumers were to last more than six years. The two insurers say the merger will result in more than $1 billion in savings and efficiencies over a six-year period.

In a statement, Highmark and IBC said they were still reviewing the reports, posted online late in the day, "and therefore cannot provide a detailed comment at this time. Our initial impression is that information in one of the reports confirm that the economic benefits anticipated from the proposed combination are reasonable, allowing the new company to better serve its subscribers, health care providers and communities."

In 1996, Highmark and IBC mutually agreed to not sell products in each other's markets for 10 years, and once that agreement expired in 2006, the two insurers began exploring a merger. But LECG, an all-purpose economic and antitrust consultant, says that absent the merger, "Highmark appears to be in a particularly good position to enter the Philadelphia area successfully," because it would be able to sell products under its well-known Blues brand and already has a physicians provider network in place.

Since proposing the merger in March 2007, Highmark and IBC officials have said that the merger -- even though it consolidates two companies into one -- wouldn't really reduce competition in the state, since the two insurers don't compete against each other as it is.

A separate report, issued last week, said the proposed merger meets most of the criteria laid out by the Department of Insurance. However, The Blackstone Group adds that Highmark is the stronger of the two entities.

In a merger, "Highmark policyholders will now be insured by a company [with] a lower risked-based capital ratio and a somewhat weaker financial strength ratio," the report said. The company is still examining whether the merger "is likely to be hazardous or prejudicial to the insurance-buying public."

The two consultants were hired by the state Department of Insurance, but costs of the $3.7 million reports are being split by Highmark and IBC. The full reports can be read online by visiting www.ins.state.pa.us, then clicking on the Highmark/IBC link in the right column.

Interested parties have until Oct. 10 to submit public comment on the reports.