WILKES-BARRE — Highmark Blue Cross Blue Shield, Pennsylvania’s largest health insurer, is seeking state approval to merge with the state’s smallest affiliated insurer, Wilkes-Barre-based Blue Cross of Northeastern Pennsylvania.
The two not-for-profit insurers on Tuesday announced they’ve signed a definitive agreement to merge, though plenty of questions remain about how the merger would impact Blue Cross of Northeastern Pennsylvania’s 750-member local workforce and its 545,000 customers before the state Insurance Department would approve such a deal.
Tuesday’s announcement comes three months after the two organizations announced that they would be embarking on a path to seek “a stronger affiliation.”
“This definitive agreement meets the goals we established when we set out to explore options for BCNEPA’s future,” said CEO Denise S. Cesare in a prepared statement.
Brian Rinker, senior vice president of Blue Cross of Northeastern Pennsylvania, said the merger will be a win for customers who will benefit from greater efficiencies, access to new products and services and expertise from Highmark, which is among the largest health insurers in the nation.
He called the agreement “maybe the most important decision the company’s made in its 75-year history,” adding it’s likely to take about a year for the state to decide.
While details will be fleshed out as filings are made public and hearings held, what’s clear is that if approved, Pittsburgh-based Highmark would increase its service territory by 13 counties. Highmark already has 4.3 million customers in Pennsylvania.
In addition, according to a joint release from the two insurers, Highmark will:
• Maintain regional operations in the BCNEPA service area, make efforts to maintain local staffing levels and attempt to identify and create new employment opportunities in the BCNEPA service area.
Rinker said all employees at the time of the agreement being approved — who remain in good standing with the company — will be guaranteed employment or their current compensation for 18 months and a set number of positions will be guaranteed for four years. He wouldn’t provide the number.
• Create a local advisory board to include board members of BCNEPA, which will have a voice in major decisions relating to the transition and operations in the BCNEPA service area for at least four years. Highmark also will add four representatives from this local advisory board to the Highmark Board.
• Become the Blue Cross and Blue Shield Association affiliate for BCNEPA’s 13-county service area.
In addition, Highmark and BCNEPA agreed that BCNEPA and the consolidated company will provide up to $100 million through a charitable foundation to benefit health and wellness and economic development efforts across the region.
According to BCNEPA, it had $304 million in reserves at the end of the third quarter in 2013.
Deborah Rice-Johnson, president of Highmark Health Plan for Highmark Inc., said: “The merger will preserve jobs and maintain the strong presence of a Pennsylvania-based not-for-profit organization that is committed to the economic vitality of Northeastern and North Central Pennsylvania.”
The deal needs approval from the state Insurance Department, something that is no guarantee.
A similar proposal five years ago between Highmark and Philadelphia-based Independence Blue Cross was denied because of concerns that the merged company would have too much Pennsylvania market share.
“The highest priority in our review of this application is to see that consumers will be protected and the impacted health insurers remain financially strong and the market competitive,” Pennsylvania Insurance Commissioner Michael Consedine said in a release. “Public input is an integral part of our evaluation, and we encourage the public to review the filing and offer written comments.”
Blue Cross of Northeastern Pennsylvania is the smallest of the state’s four nonprofit Blue Cross companies with Highmark, Independence and Harrisburg-based Capital the top three. The new entity, if approved, would cover all but five of the state’s 67 counties.
Rinker said the changing health care landscape necessitated the need for the local Blue Cross to find a partner.
“The health care environment is changing rapidly so we’re trying to take a long term view. We just think a larger company is better suited to withstand the headwinds,” Rinker said.
BCNEPA sent out word in the health care community that it was looking for affiliations or mergers and three insurers responded with proposals, according to Rinker. BCNEPA met face to face with each of those organizations, which Rinker declined to identify other than Highmark being one of them.
“They (Highmark) have done this before. They’ve done it in Delaware. They’ve done it in West Virginia,” Rinker said. He said BCNEPA officials contacted those involved in those mergers to see how it impacted the organization and the community and felt comfortable that Highmark did things right and as promised.
Blue Cross Blue Shield of Delaware became an affiliate of Highmark in 2012 while in 1999, Mountain State Blue Cross Blue Shield in West Virginia affiliated with Highmark and eventually became Highmark Blue Cross Blue Shield West Virginia.