Insurance companies' merger: What claims? What benefits?

Health insurers' merger . . .

Before your eyes completely glaze over, ask yourself this: What will the proposed merger of the state's two big kahunas in health insurance - Philly-based Independence Blue Cross and Highmark, out of Pittsburgh - mean for you, the Pennsylvania consumer?

Will you pay lower premiums, or receive better medical treatment as a result of a bigger - and supposedly more efficient - health-care giant?

Or will the long-term effect be bad for Pennsylvanians because the giant entity - controlling 53 percent of the in-state market - ultimately reduces customer choice?

Executives from the two companies will be asked these and other questions at a public hearing being held by Pennsylvania's U.S. senators Arlen Specter and Bob Casey this morning at 9:30 a.m. at the National Constitution Center, on Arch Street near 5th Street.

In the meantime, the Daily News spoke with experts in the field, and some consumer advocates are not at all happy about the Independence-Highmark deal, at least based on what they now know.

We also spoke to the Blues to try to get more details, but we were informed that they had already spoken to the media and wouldn't be doing any new interviews on the matter for now.

Independence did, however, send us a partial transcript of its one news conference on the topic, along with a news release about the plan.

So here are some questions and answers about one of the biggest things to happen to Pennsylvania health care since Benjamin Franklin declared that an apple a day keeps the doctor away.

Q. OK, I confess, I was busy voting for Sanjaya on "American Idol" last week. Tell me again what happened.

A. The boards of the two massive nonprofits - Independence Blue Cross, with its strong customer base in the Philadelphia area, and Highmark, focused on Western Pennsylvania - approved a merger on Wednesday, March 28. They still have to go through both a state and federal regulation process, which they hope to have finalized later this spring, though it may take longer.

Not only would the new healthcare powerhouse, with roughly 8 million insured, become by far the largest player in Pennsylvania, but it would be the second-largest in the nation.

Q. Why would they do this?

A. Well, executives with the two outfits say the larger operation will be much more efficient, and that some of those savings will trickle down to consumers. Specifically, they claim that they can hold down administrative fees by $300 million over two years and curb prescription costs by $280 million.

"There will be savings from this that will go to help make health care more affordable," said Dr. Kenneth Melani, president and CEO of Highmark.

However, he also suggested that the savings would more likely prevent premiums from rising higher during the next couple of years - not lower them.

Melani, by the way, will become chief executive of the new company, while Joseph A. Frick, head of Independence Blue Cross, will become president and chief operating officer.

Melani and other officials insisted there is no plan to convert the combined insurer into a massive for-profit company, as some analysts of the deal have speculated.

Q. Will this benefit the uninsured?

A. Opinions on that vary, depending on whom you ask. In announcing the deal last week, officials with Independence and Highmark said that the merger would mean $650 million to help provide healthcare to the currently uninsured.

But even in answering reporters' questions on the topic, it wasn't immediately clear how much - if any - of the $650 million was new money and how much was already in the pipeline. In 2005, Independence and Highmark joined two other Blue Cross insurers in agreeing with state officials to a six-year, $1 billion community-reinvestment plan.

Consumer advocates questioned whether there really is any new money for low-income Pennsylvanians.

"We think this money was money they are already required to give, and they are touting it like it is new money that this merger will create because of savings," said Jonathan M. Stein, general counsel for Philadelphia-based Community Legal Service. "There doesn't appear to be anything new coming out of this."

Q. What else do these consumer advocates think about the deal?

A. Not much. In addition to the lack of clarity over new monies for the uninsured, these advocates say that any benefits to existing members are for now unclear, though from what they can tell, they don't amount to much.

Lance Haver, who heads Philadelphia's Office of Consumer Affairs, said, "From what we can tell, there is little if no money that is being passed on to their consumers then. So, clearly, as far as the public is concerned, there is no real upside."

In addition, he worries that the merger will mean fewer jobs as the merged insurer looks to reduce its payroll. Officials said that if there are any cutbacks, they would come only through attrition.

Q. What do health care experts say about the merger?

A. Mark Pauly, a University of Pennsylvania economist who specializes in healthcare, said the potential of $280 million in drug savings seems more likely than the other potential benefits. "There's some chance to move towards an economy-of-scale business there," he said.

And, he added, there is "the potential for an improvement in efficiency with a much larger company, especially if there's some sort of major shift in insurance technology."

However, he added that the two large insurers may already be at that point. And he said he has some doubts on what the deal will actually accomplish if the companies are not looking to convert to for-profit status down the road.

Q. How much scrutiny will this deal get?

A. The Pennsylvania Department of Insurance will review the deal, according to officials, but only to gauge whether the new outfit is a monopoly, not whether it benefits customers.

"The problem is that in Pennsylvania we don't have a mechanism to scrutinize this kind of deal," said Pedro Rodriguez, director of Action Alliance of Senior Citizens. "We don't have a process like we should to make sure the consumer is protected."

On the same day as the announcement, the state Senate unanimously approved legislation that would require a broader review of mergers by nonprofits by state regulators. The bill must still be approved in the state House and signed by Gov. Rendell.

Advocates don't think the deal will get a very close look in Washington.

Haver, a former Consumer Party mayoral candidate now working for a Democratic city government, said that "under the Bush administration, it seems that business can do no wrong, so no, I don't think it is safe to assume that the federal government will protect the public and consumers." *