The first public hearing was held yesterday on the proposed merger between colossal, Pennsylvania-based health-insurance providers Independence Blue Cross and Highmark, and politicians and consumer advocates questioned how the deal would help consumers.
At the hearing at the National Constitution Center, Sen. Arlen Specter, R-Pa., said that the two companies "are enormous," and that he "has real concerns about the financial implications of the merger.
"We need to provide medical care for all Americans," said Specter. "And this proposed merger has major implications for the people of the commonwealth."
Asking questions of the presidents of both companies, consumer representatives and state Sen. Donald White expressed concern that the deal would reduce competition among insurers in the state and remove pressure to lower rates.
They also asked if the merger would help cover more of the uninsured people in the state.
Specter questioned how much of a nonprofit the proposed business can be, given that Independence Blue Cross showed a 2005 surplus of $1.43 billion, while Highmark had a surplus of $2.8 billion.
"There's a real question if that is excessive," Specter said.
On March 28, the Pittsburgh-based Highmark and Philly-based Independence Blue Cross agreed to merge.
Before the deal can be completed, the plan must face federal and state regulators.
The state Insurance Department also must sign off on it, according to a bill making its way through the state Senate.
Both companies say the merger will streamline their business, with the consumer reaping the benefits of lower premiums and co-pays.
"The issue is the availability of affordable health care," said Blue Cross President Joe Frick. "We believe this can generate $1 billion in resources in the next six years.
"We'll get these savings through consolidation. Blue Cross and Highmark are not competitors, so this is good for Pennsylvania."
In addition, the companies said there won't be mass layoffs.
"People made the assumption that we are going to lose between 9,000 to 10,000 people, and that just isn't the case," said Highmark's president and chief executive, Dr. Kenneth R. Melani, after the hearing.
"If we lose any, it will be by attrition, and we'll gain them back through growth."
Melani said he's looking at maybe losing 1,000 workers through attrition.
But the plan's critics, such as White and Pedro Rodriguez of the Action Alliance of Senior Citizens of Philadelphia, say the deal will cripple the consumer's right to fair pricing while forcing interested competitors to think twice about doing business in Pennsylvania.
The merger "would be a potential disaster for Pennsylvanians," Rodriguez said.
"It would be a de facto for-profit company, and the rising Blue Cross premiums will continue."
This is the first in a series of at least four Senate Judiciary Committee hearings on the merger; the committee will set the date and time for the next hearing.
White, who is a former insurance broker and whose district includes parts of five counties in rural western Pennsylvania, said he was "encouraged by the concerns of the committee" and that he hoped the Legislature would provide oversight for the merger.
White also said his bill does just that. "This scrutinizes this merger," White said.
"And if it's not in the best interest of Pennsylvanians or for the competition . . . then the attorney general can take anti-trust action," he said.
Melani said the two Blues welcome the attention.