Highmark and Independence Blue Cross Withdraw Merger Applications

Two of Pennsylvania's largest health insurers have decided to abandon a plan to merge, according to a joint statement released by the CEOs of Pittsburgh-based Highmark Blue Cross BlueShield and Philadelphia-based Independence Blue Cross (IBC). The two carriers first submitted merger applications to the Pennsylvania Insurance Department (PID) in April 2007.

"During the last 21 months, our proposed combination has been closely examined in an unprecedented, wide-ranging, and open review with extensive public comments, outside expert analysis, and 10 public hearings," Highmark president and CEO Kenneth R. Melani, M.D. and IBC president and CEO Joseph A. Frick said in a joint statement. "However, 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."

State insurance commissioner Joel Ario welcomed the decision to abandon the merger plan. "We were prepared to disapprove this transaction because it would have lessened competition and disadvantaged providers to the detriment of the insurance buying public," Ario said in a press release. "Pennsylvania consumers already face one of the least competitive health insurance marketplaces in the country and this consolidation would have made it worse, resulting in fewer choices for consumers and weaker provider networks for consumers who depend on those networks for access to quality health care."

Highmark and IBC disagreed with the commissioner's assessment, arguing that the U.S. Department of Justice twice examined the competitive effects of the merger and cleared the transaction both times. "We have shown that the combination would not lessen competition in our markets," Melani and Frick said.

According to the PID, the withdrawn merger would have created an insurer with a combined $17 billion in annual premium revenues and a 51 percent market share in the state. The PID suggested that the potential company could have forfeited either its Blue Cross or Blue Shield trademark to a qualified competitor, in order to maintain a "Blue-on-Blue" competitive balance within the state health insurance market, but the companies declined, calling their brands an integral part of their corporate identities and reputations.

"While we believe that the combination as originally proposed would have been of great benefit to all of our stakeholders, we concluded that giving up one of our brands would preclude the new company from delivering to our customers, communities, and the Commonwealth the full results we had projected," Melani and Frick stated.