Insurance mergers may skip Pittsburgh

UPMC, Highmark could buck trend

An out-of-state suitor could find plenty to love in Highmark, one of the biggest Blue Cross companies anywhere. Rival UPMC Health Plan is no small catch, either, as its double-digit market share would be an attractive foothold for wouldbe buyers looking to win over the Pittsburgh area.

But don’t expect the region’s dominant health insurers to join the consolidation wave that’s sweeping larger competitors this summer. Regulatory scrutiny and a bitter feud between the Downtown-based companies could tarnish their luster as acquisition targets — at least for now, industry analysts say.

The mergers that are in the works so far are meant to combine “national organizations trying to put together more economies of scale,” said Robert Laszewski, a health care policy consultant outside Washington, D.C.

“You already have two behemoths in Western Pennsylvania.”

In addition, he said Highmark Inc.’s affiliation with the Blue Cross Blue Shield Association would complicate and limit any consolidation to other groups in the Chicago-based association — unless Highmark gives up its nonprofit status.

Rather than discuss the prospects of a takeover, Highmark noted that in June it purchased Blue Cross of Northeastern Pennsylvania, which added nearly 550,000 new customers. The company now covers about 5.3 million people, including about half the commercial health insurance market in Pittsburgh.

UPMC Health Plan controls more than a quarter of the local commercial market and covers around 2.5 million people.

Regulatory control

Such substantial numbers would invite close inspection from state regulators for any potential merger, no matter the buyer, said University of Pittsburgh professor Mark Roberts.

“They’re both so large that if either one of them got too much bigger, they would be seen as monopolistic. I don’t think it would be allowed by the attorney general. They’re already such a large portion of the health care market here,” said Dr. Roberts, who chairs the health policy and management department at Pitt.

Attorney General Kathleen Kane’s office and the Pennsylvania Insurance Department would not

speculate on how they would approach such a deal.

The four national insurers that announced consolidation agreements last month may face similar concerns from the U.S. Department of Justice, which could force the companies to slim down in regions where the combined businesses might control policy pricing and access to care.

A $37 billion merger of Hartford, Conn.-based Aetna Inc. and Humana Inc. in Louisville, Ky., announced July 3, would cover more than 33 million people and form the country’s second-largest health insurer. The largest would emerge from a $54.2 billion combination of Indianapolis-based Anthem Inc. and Cigna Corp. of Bloomfield, Conn., which together would cover more than 53 million people.

Both agreements are subject to federal and state approval. The for-profit companies expect to finalize the arrangements in the second half of 2016, saying the moves should shave corporate expenses and control insurance prices for policyholders.

Big employers aren’t so sure.

“Employers will really need, now more than ever, to come together and have a stronger voice collectively as they engage with these health plans — because alone they’re not enough.”

Business concerns

“From our perspective, scale for the sake of scale will potentially result in higher costs. Consolidation that reduces costs and improves the consumer experience will be embraced. The question is, which is it going to be?” said Brian Marcotte, president of the National Business Group on Health in Washington. Its members include 71 of the Fortune 100 companies.

Mr. Marcotte said merged companies would chase more than 60 million Americans covered in the last few years under the Affordable Care Act online marketplaces and Medicaid, including state Medicaid expansion programs. He said that expanded market is driving insurers to compete harder.

A June 25 Supreme Court decision upholding insurance subsidies through federal marketplaces has “ensured the exchanges are here to stay,” Mr. Marcotte said.

Insurers also want larger footprints to leverage negotiating power against hospitals and smaller care providers, many of which have consolidated into influential regional systems such as UPMC, the parent of UPMC Health Plan. The UPMC integrated provider-insurer model appears unlikely to give up the insurance operation to an outside company, Mr. Laszewski said.

“They’d be selling the chicken coop to the fox. That’d make no sense,” he said.

UPMC Health Plan declined an interview but touted its methodology. The approach “offers the highest quality at among the lowest costs for a wide range of products and services

Jessica Brooks, CEO of the Pittsburgh Business Group on Health and will continue to do so in our region’s newly competitive health insurance marketplace,” spokeswoman Gina Pferdehirt said in a statement.

Deteriorating relations between UPMC and Highmark Health, which also owns Allegheny Health Network, have limited innetwork access to UPMC hospitals this year for many Highmark insurance customers in the Pittsburgh region. The corporate clash is bound for the state Supreme Court, where UPMC wants to halt in-network access next year for Highmark members on Medicare Advantage plans. That argument stems from a dispute over payment for cancer care.

The discord could make Highmark less attractive to merger-hungry companies, although it could be an eventual good match for Blue Cross sibling Anthem, said health administration professor Stephen Foreman. He said other Blue Cross Blue Shield companies have dropped nonprofit status at least 20 times.

“After the conversion in almost every instance, the converted firm was acquired” by another, said Mr. Foreman, who teaches at Robert Morris University. He said Anthem has made a habit of absorbing state-level Blue Cross Blue Shield insurers across the country.

In the meantime, observers suggested Highmark and UPMC Health Plan might explore their own acquisitions.

Either way, benefit plan coordinators should prepare to face growing insurers, said Jessica Brooks, CEO of the Pittsburgh Business Group on Health. Its members include many of the region’s major employers, which will need to advocate for reasonable rates and flexible coverage for their workers, Mrs. Brooks said.

“Employers will really need, now more than ever, to come together and have a stronger voice collectively as they engage with these health plans — because alone they’re not enough,” she said.

Ms. West is single with no children. When she moved from Florida back to Pittsburgh in 2007, she and her boyfriend pooled their student loan money to purchase a two-bedroom home in Belzhoover for $15,000 so they have no rent or mortgage payments. Ms. West said her recovery plan during the next five years is to buy more low-priced homes for either rentals or flips.

Her hope is to build enough real estate equity to offer her student loan lenders a lump sum settlement in 2020. Mr. Herron said such settlements are rare, but possible.

A lump sum settlement is a single large payment made to a creditor in place of small monthly payments made over time. While it is a lesser amount than what is owed on a debt, the debt is considered paid-in-full after the lump sum payment is made.