Health giant Highmark Inc. is eyeing opportunities to grow outside of Western Pennsylvania as it prepares for the possibility of losing customers in the region when its contract with rival UPMC expires.
Highmark said on Tuesday that it is talking with Blue Cross of Northeastern Pennsylvania about creating a “stronger affiliation” between two of the state's four nonprofit Blue Cross companies.
Highmark, the state's largest health insurer with about 5 million members, purchased Blue Cross companies in Delaware and West Virginia in recent years, adding about 600,000 members.
If talks between Highmark and the much smaller Blue Cross of Northeastern Pennsylvania lead to a takeover, Highmark would gain about 545,000 members in 13 counties.
With about 60 percent of the health insurance market in Western Pennsylvania, Highmark is the dominant carrier. That could change if UPMC's insurance division and several national companies persuade employers to leave Highmark for health plans that will keep in-network access to UPMC's hospitals and doctors after 2014.
UPMC refused to negotiate a reimbursement contract with Highmark because the insurer bought West Penn Allegheny Health System and converted itself into UPMC's chief competitor for medical services and health insurance. Without a contract, Highmark members will pay more expensive out-of-network rates at UPMC starting Jan. 1, 2015.
Highmark “could be faced with losing market share” if the UPMC contract expires, said Tom Tomczyk, a principal in the practice of Buck Consultants, a Downtown benefits consulting firm. That means growth could come only from outside the region, he said.
“Highmark branched out into other states to expand their business,” he said. “Highmark's ongoing business plan is to continue to grow.”
Highmark tried to merge with another of the state's Blue Cross companies. But in 2009, Highmark and Independence Blue Cross in Philadelphia dropped their proposed merger, citing conditions that state regulators wanted to place on the deal to maintain a competitive insurance market.
The state Insurance Department declined to comment on the talks between Highmark and Blue Cross of Northeastern Pennsylvania. Spokeswoman Melissa Fox said neither company filed documents with the regulator regarding an acquisition or merger.
Mark Pauly, a professor of health care management at the University of Pennsylvania's Wharton School, said it is unlikely that state regulators would object to Highmark's absorbing the Wilkes-Barre-based Blue Cross company because the markets don't overlap.
It's more likely the smaller Blue Cross wants the protection of a larger company as implementation of the Affordable Care Act creates uncertainty for insurers, he said: “They believe there's safety in numbers and safety in size.”
Some insurers worry they'll lose business from individuals with chronic illnesses who previously could buy coverage only from Blue Cross companies. Under the law, dubbed Obamacare, those individuals can buy insurance through a government website where a number of insurers offer plans. Other customers, who may buy insurance for the first time because their illnesses made them costly to cover, might flock to these same insurers and increase the companies' risk.
Health insurers “are going to need money to deal with negative selection and losses,” said James McTiernan, a health care consultant with Triad Gallagher, a Downtown benefits consulting company.
Pennsylvania is unusual among states for having four nonprofit Blue Cross companies. Only five other states have more than one; there are 37 Blue Cross companies across the country. Several companies, most notably Anthem Blue Cross, are building multi-state companies through consolidation.
“There are not going to be a lot of niche players left,” McTiernan said.
Highmark and Blue Cross of Northeastern Pennsylvania have existing partnerships, officials said. Blue Cross of Northeastern Pennsylvania uses Highmark's information technology systems for claims processing, spokesman Aaron Billger said. The companies jointly own First Priority Health, an insurance subsidiary that sells group health plans to companies in northeastern Pennsylvania. They partner on Medicare Advantage plans sold to seniors there.
Highmark views that region “as very important to the community,” William Winkenwerder, Highmark CEO, said in a statement. His counterpart, CEO Denise S. Cesare, said the discussions are meant to “best serve the long-term needs of the residents” in 13 northeastern counties.
Blue Cross of Northeastern Pennsylvania's revenue averaged $750 million per year in 2011 and 2012, the company told the Tribune-Review this year. Highmark's annual revenue in 2012 was $15.2 billion.
Alex Nixon is a Trib Total Media staff writer. Read More: http://triblive.com/mobile/5055230-96/blue-cross-highmark