HARRISBURG, Pa., Jan. 22 /PRNewswire-USNewswire/ -- Pennsylvania Insurance Commissioner Joel Ario today welcomed the Jan. 21 decision by Independence Blue Cross (IBC) and Highmark to withdraw their proposed consolidation.
Ario praised the insurers as "quality companies with extraordinary track records in serving Pennsylvania consumers" and pledged to work cooperatively with them to "pursue the broader health reforms necessary to resolve the health care crisis." "Bigger is not always better -- and in this case, bigger would have been bad for consumers," said Ario. "We were prepared to disapprove this transaction because it would have lessened competition and disadvantaged providers to the detriment of the insurance buying public. "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," said Ario. "When examining insurer transactions, the department is charged with analyzing specific standards addressing licensure, financial stability, business plans and management, as well as the impact the transaction would have on competition and the consumer. This transaction passed the basic financial and management tests, but it did not satisfy the competition test," he added. Ario said that the proposed consolidated company, which he referred to as "Newco" solely for demonstration purposes, would have had a dominant position in the Pennsylvania market with $17 billion in annual premium revenues and a 51 percent market share -- an unprecedented level of market power in a single state, more leverage than any other health insurer has in any other single state. "While our experts found that Newco's increased scale would have generated significant efficiencies, the public benefits from the transaction were not nearly enough to outweigh the anti-competitive harms to consumers," Ario said. "We considered various conditions that could have reformed the transaction into a pro-competitive one. The most important condition was to expand 'Blue on Blue' competition based on the demonstrated benefits of the current competition between Highmark and Capital BlueCross in Central Pennsylvania." Ario said the applicants were not willing to engage on this condition, which would have involved Newco divesting one of the two Blue trademarks (Cross or Shield) and working with its national association to have the trademark awarded to a qualified competitor. "Newco and the qualified competitor then would each have a Blue trademark to compete 'Blue on Blue' in Philadelphia and Pittsburgh, but the transition would have been complicated even with the cooperation of the applicants," Ario said. Ario also discussed two other conditions: reasonable public benefits for the state and fair play rules to address anti-competitive practices and enhance transparency. "We never really engaged on these conditions given the impasse over divesting a Blue trademark, but the Blues' social mission and redressing anti-competitive practices in the marketplace will continue to be issues for the Governor and the General Assembly," he said. The Insurance Department's 21-month review of the proposed consolidation was the most extensive review in the agency's history, and required complex analyses under the statutes of how to define markets and how to balance the anti-competitive harms against the public benefits that the transaction could have produced. While it was clear that the anti-competitive harms outweighed the public benefits, the department does not have to reach closure on all the final details because the applicants' withdrawal effectively ends the review process. "Our goal was to make our regulatory review as transparent as possible and I believe we achieved that goal," Ario said. "More importantly, consumers and stakeholders of all types were engaged and we learned from their considerable insight and participation." The review process included three public hearings across the state, written comments from 356 interested parties, legislative recommendations, and analyses from nationally renowned financial and economic experts -- all encompassed in 50,000 pages of commentary and analysis on the department's Web site at www.insurance.state.pa.us. Editor's Note: Graphics and charts associated with Commissioner Ario's analysis are available at www.insurance.state.pa.us.
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