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For Immediate
Release
7/10/08
 
Testimony of Senator Don White
Before the State Insurance Department/Blues Merger
Commissioner Ario, distinguished panelists, I would like to open by thanking
you for the opportunity to present my views and concerns regarding the proposed
merger of Highmark and Independence Blue Cross. As Chairman of the Senate
Banking and Insurance Committee, I have a number of concerns about the potential
impact this extraordinary merger would have on all aspects of healthcare in
Pennsylvania. Moreover, as a Senator representing a rural district in Western
Pennsylvania, where Highmark and its subsidiaries already have a vast majority
of the market share, I know first-hand the consequences that a lack of
competition has on health care providers and premium payers.
I simply do not believe that Highmark and IBC have clearly demonstrated the
long-term benefits of this proposed merger. And I emphasize ‘long-term’ as I
believe this merger must be considered based on its potential impact on the
Commonwealth 10, 15 or 20 years from now. I would encourage the Insurance
Department and its consultants to consider two questions before rendering a
decision on the merger. First, will this merger truly provide LONG-TERM
benefits to the policyholders of Highmark and IBC? And if the Department
determines that it would provide these benefits, then what safeguards will be in
place to ensure they actually come to fruition?
Personally, I am extremely skeptical that any true long-term benefits will be
derived from this merger. I urge you to consider the Blues’ positions on four
points:
Highmark and IBC have pledged to freeze administrative fees for two
years. This proposed freeze really stretches the definition of a
long-term benefit -- except maybe for the principal parties involved in the
merger. It stands to reason that any merger of this magnitude should result
in substantial enough savings to ensure that administrative costs remain
stable or – as in most merger business models – actually decline. If this
merger truly develops efficiencies that otherwise could not be achieved
without this union, then it certainly is realistic to believe that
administrative fees could be held in check for longer than two years.
Therefore, I would encourage the Department and its experts to consider
setting a higher, more realistic standard that would truly provide long-term
benefits. Perhaps administrative fees should be frozen for five or 10
years? Or, should they be reduced from the outset and then frozen, or at
least tied to a certain rate of increase?
This merger will produce $1 billion in ‘savings’ of which $650 million
will be granted to the Commonwealth. This is certainly worth extensive
consideration and review. Let’s be upfront and clear and call these
proposed ‘savings’ what they really are -- excess premium dollars – plain
and simple. In fact, the Insurance Department should be asking why these
dollars should be given to the Commonwealth in the first place. Why should
the Commonwealth reap the rewards from individuals and businesses being
overcharged for their health insurance? Even if all is above board, this
proposal gives the appearance of being a quid pro quo. If the merger must
meet the standard of being a benefit to the policyholders, then why are
those dollars not being returned to them as premium reductions?
Moreover, if the $650 million in savings is given to the Commonwealth, I
do not believe that it should be considered as a benefit solely derived from
the merger. Consider the Blues’ current Community Health Reinvestment
Agreement (CHRA) which expires in 2010. Highmark and IBC already give the
Commonwealth at least $80 million annually under the CHRA. Therefore, any
future contributions should augment the contributions set by the existing
agreement. Pledging $650 million, while being left off the hook for $80
million annually after 2010, is nothing more than a shell game. And let’s
remember that the pledge of $650 million comes in place of paying premium
taxes on Highmark’s and IBC’s non-profit business. So is this truly new
money or just another way of packaging what the Blues should already be
doing to fulfill the social mission that excuses them from these taxes?
The Blues contend this merger does not eliminate competition in the
market place. That is simply unfathomable. In no uncertain terms, this
merger would certainly eliminate potential and existing competition from the
marketplace. Highmark could compete with IBC today in southeastern
Pennsylvania, yet “voluntarily” chooses not to do so. Just as importantly,
both Highmark and IBC have extensive packages of subsidiary plans that are
able to compete with each other outside the predetermined boundaries
established the Blue Cross/Blue Shield Association. Make no mistake; this
merger would limit competition now and into the future in Pennsylvania’s
health insurance marketplace.
I wholeheartedly agree with Governor Rendell when he referred to the
potential merger in an August 3, 2006 article in the Pittsburgh Post
Gazette: “One of the things we’re going to do is set a pretty high bar to
see whether this will further decrease competition in the Commonwealth.
That’s not a good thing for employers and that’s not a good thing for
physicians and hospitals." I hope Commissioner Ario, you and the
Department share the standard set forth by the Governor.
Many community groups will benefit from Highmark and IBC’s generosity.
While such generosity is notable and admirable, it should not influence the
decision to approve this merger. Please remember that premium payers are the
source from which those dollars are ultimately derived. Highmark and IBC are
redistributing excess premium dollars in the name of benevolence – which
serves as much to their marketing advantage as the community groups’
benefits. Therefore, any commitment that the new unified conglomerate would
support community projects should not be a standard of consideration for the
merger – this is something they should do as responsible members of
Pennsylvania’s business community irrespective and in light of the benefits
that the parent companies receive as not-for-profit entities.
To be clear, such benevolence does not exist because these entities are
kind hearted – it is a product of the preferential tax status they enjoy as
non-profit entities. Such status not only provides them with a competitive
advantage over for-profit insurers, but also obligates them to be the
benevolent institutions their limitless advertising budget says they are.
While I firmly believe the Insurance Commissioner should not approve the
merger, based on the record I’ve seen so far, I would strongly suggest that
certain contingencies be in place if it is approved. These contingencies could
include the following:
1. Providers must have proper recourse when negotiating appropriate
reimbursement rates. In today’s market, small and rural hospitals rely almost
exclusively on Highmark reimbursements, which unfortunately all too often means
that they are almost literally beholden to Highmark’s rates. There is already
documentation available showing great disparity in reimbursements for the exact
same procedures based on size and location of the treatment facility. This
situation, which is already very detrimental for health care consumers and
providers, would likely be exacerbated with the combined market share power of
the merged Blues. In the short-term, the new conglomerate could easily “buy or
bury” smaller providers, essentially swallowing up what little competition
remains. Under that scenario, the long-term market view would be very grim for
health care providers and consumers. Essentially, health care in Pennsylvania
could devolve into a quasi-Medicare or Medicaid system under which the
conglomerate would set reimbursement rates and health care providers could “take
it or leave it.” And if all of the competition is gone, consumers will have few
options to consider when purchasing health insurance. In order to avoid this,
an independent arbitration system must be established to mediate reimbursement
negotiations. Witness the current standoff between Conemaugh Hospital and
Highmark as an example of the unfortunate consequences of ‘take it or leave it’
negotiations.
2. Require the ‘new Blue’ to only community rate their small group and
individual products. Such a rating restriction will ensure stable rates in
these markets while allowing smaller insurers to compete through their ability
to continue medical underwriting. The side benefit to such a contingency would
be to ensure competition in the health insurance marketplace while providing
small employers with young and healthy workforces the ability to provide their
employees' health insurance.
3. Administrative fees must be frozen longer than the two years proposed
by the Blues. A merger of this magnitude should have a much more positive
impact on reducing administrative overhead – particularly in the long term.
4. Require the $1 billion in ‘savings’ to go directly to consumers
through reductions in premiums. Why should the Commonwealth receive this money
to redistribute? The rate payers should reap the benefits of the merger – not
the Commonwealth.
5. Require the Blues to shed their investments in other Blue plans, such
as Highmark’s operational ownership of BlueCross of Northeastern PA’s largest
for-profit subsidiary, First Priority Life Insurance Company (FPLIC). Also, the
conglomerate should not be able to have a ‘vertical’ monopoly over products and
services, such as what Highmark currently enjoys through Davis Vision.
6. Require the New Blue to support the two remaining Pennsylvania
Blue
plans opportunity to offer Blue-branded products statewide. It is unfortunate
that a national association, hiding behind a curtain in Chicago, has the ability
to dictate to where and how Pennsylvania Blue Plans market their products. Yes,
it is a franchise agreement, but as a resident of Indiana, Pennsylvania, I can
still patronize a McDonalds in Philadelphia if I so choose. Why can’t health
care consumers have the same opportunity? In fact, rather than merger, perhaps
IBC should be given the ability to offer a Blue-branded product statewide.
Quoting here: “Competition is good for everyone; it keeps you focused on the
customer, it keeps you being innovative,". Those are not my words, but the
words of Dr. Melani in the Tribune Review on May 8, 2005. I’m certain
Dr. Melani still holds that view and by supporting his peers' ability to compete
statewide he will have the ability to place what he believes in practice and
ensure the benefits of competition he sees will come to fruition in
Pennsylvania’s health insurance market.
As the Senate Banking and Insurance Committee prepares additional
recommendations for your consideration pursuant to the provisions of HB 1150, it
is my hope you will consider the five recommendations I’ve set forth this
afternoon.
Commissioner Ario, I believe your review of this proposed merger must place
the burden of proof upon Highmark and IBC to justify beyond a reasonable doubt
that this merger will provide meaningful and long-term benefits to the people
they insure, the providers they reimburse and the health care interests of
Pennsylvanians at large.
I appreciate your time and consideration and look forward to working with you
as the merger review goes forward. Thank you.
Contact:
Joe Pittman
(724) 357-0151, cell (724) 541-0552
Additional Information:
Health Care
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