January 23rd, 2009

Although the Legislature was not in session this week, there were two startling announcements:

1. Independence Blue Cross and Highmark Blue Shield withdrew their application for a merger

2. Governor Rendell reported a $2.3 billion revenue shortfall and impending layoffs

Highmark & IBC sing the Blues

The last few days have seen an abundance of newspaper articles and editorials regarding the Blues’ merger. After being saddled with a condition they could not live with, both Independence Blue Cross and Highmark Blue Shield withdrew their application for a merger. The condition was that they could only operate with one of their coveted trademarks: Blue Cross or Blue Shield. This condition was suggested back in the summer during the public hearings and both companies voiced extreme opposition. Brand was one of the three conditions for the merger. The other two were: Public Benefit synergies and Fair Market Practices. They would have needed to expand their social mission and have maintained fair contracts with providers and increase transparency.

Insurance Commissioner Joel Ario, released a statement shortly after, explaining that he planned in issuing a disapproval of the merger application on January 27. He cited that the application failed to meet 2 of the 7 standards: competition and hazardous/prejudicial. This merger would provide an anti-competitive marketplace for new companies to enter and the merged company would have too much leverage over providers and pricing, according to the reports from Blackstone, LECG and Jay Anghoff.

The two insurers are obviously disappointed and maintain their position that a merged company would provide a tremendous benefit to the Commonwealth and would not stiffle competition.

Hard Times

Governor Rendell reported a $2.3 billion revenue shortfall during a press conference on Thursday. The informed the press that layoffs were coming. PA’s job loss rate is about 6.7 percent, but fares better than the rest of the country which came in at around 7.2 percent in December.

This bad news led Rendell to predict that state government would begin laying off workers later this year. He is hoping that the Commonwealth will receive $2 to $4 billion from President Obama’s stimulus plan. This may help close the gap, but with 5 months left in the fiscal year there will still be real-time bills to be paid. 

A look to Next Week

The legislature is back in session starting January 26.