PITTSBURGH – Consolidation and economies of scale are two key reasons behind the combination of two large Blues plans in Pennsylvania. The merger, announced in late March, will form an organization that covers nearly 8 million lives in the Pennsylvania market.
The organizations contend the combination will provide more than $1 billion in economic benefits to the state and provide other improvements for their customers.Pittsburgh-based Highmark Inc., which covers an estimated 4.6 million lives in western and central Pennsylvania, and Independence Blue Cross of Philadelphia, with nearly 3.4 million covered lives, began filing formal requests for state and federal approval last month.
The organizations, which are independent licensees of the Blue Cross and Blue Shield Association, are expected to control about 50 percent of the state’s insurance market.
The new company will maintain dual headquarters in Pittsburgh and Philadelphia and is expected to employ 18,000 people statewide. It estimated payroll for the joint company at about $4 billion, said Joseph A. Frick, Independence’s president and CEO.
“By bringing together the best practices of the two organizations, we will remain a Pennsylvania-based company and work to expand access to healthcare coverage, make health insurance more affordable and improve the quality of medical care and the overall health of the communities we serve,” said Kenneth R. Melani, MD, president and CEO of Highmark, who will be CEO of the new company. Frick will be vice president and chief operating officer.
The CEOs said the new organization will be able to hold administrative fees flat for about two years, resulting in savings of $300 million; better manage prescription drug costs, which could save customers as much as $280 million; and provide more than $650 million to help expand access to health insurance for the state’s uninsured market.