The insurers, however, dispute the claim, which was made in testimony before a delegation from the state Insurance Commission that met Downtown.
Excluding the companies' business as an insurance administrator to medium- and large-sized employers that insure themselves, the combination still would hold 63 percent of the commercial insurance market statewide, Monica Noether told the panel, chaired by Commissioner Joel Ario.
"Based upon my analysis, the combined Highmark-IBC will have more than a 70 percent share of the commercial health insurance market," said Noether, executive vice president of Boston-based consulting firm CRA International and a former deputy assistant director of the Federal Trade Commission.
She presented a slide placing the percentage at 72.
"A firm with more than 70 percent of the market is likely to have the ability to exert market power, which could allow them to raise the price and reduce the quality," Noether said.
Highmark spokesman Michael Weinstein said he was unsure where Noether got her statistics or whether the inclusion of self-insured business included companies outside Pennsylvania.
"Highmark and Independence Blue Cross disagree with Dr. Noether's market share analysis," Weinstein said. "She didn't disclose how she arrived at her conclusion in her testimony, and she couldn't respond to Commissioner Ario's questions when asked specifically what her conclusions were based on."
"All the data only pertains to Pennsylvania, and came from the National Association of Insurance Commissioners and state filings," Noether said, responding to a reporter's question.
Noether was one of 29 speakers slated to testify yesterday during a full day of public hearings concerning the proposed merger at the Westin Pittsburgh Convention Center Hotel.
Another day of testimony is slated for today in Harrisburg, and for next Tuesday and Wednesday in Philadelphia.
The public hearings are part of the insurance department's deliberation of the merger, a process that began about 16 months ago.
"We're still in the fact-gathering stage of the process," said Ario, who was confirmed for his post as state insurance commissioner last week. "The department is holding these public hearings to seek further public input before we move from fact-gathering to decision-making," he said.
Highmark President and CEO Ken Melani and his Independence counterpart, Joe Frick, reiterated the reasons why the merger should be permitted.
Coming together will help them compete with much larger, for-profit insurers, provide the highest quality health care possible at an affordable price and continue to be a positive economic generator throughout the state, they said.
"We believe this transaction will allow us to build on our history and lay a foundation for significant, tangible impact in the way health care is delivered and paid for in Pennsylvania," Melani said.
Competition was a major discussion topic during the hearing.
One of the partners' consultants, Economists Inc. Chairman Barry C. Harris, said that the fact that Highmark controls some 55 percent to 60 percent of health insurance business in Western Pennsylvania and 22 percent to 23 percent of the business in Central Pennsylvania, while Independence dominates the health insurance market in five Southeastern counties, shouldn't halt a deal.
"My overall conclusion is that the proposed transaction, whether viewed as a change of control of various subsidiaries or as the overall consolidation of Highmark and IBC, will not substantially lessen competition in any relevant health insurance market in Pennsylvania," Harris said.
Harris added that his analysis found that the relevant health insurance markets in Pennsylvania are local or regional, and not statewide, with the two merger partners not competing in the same markets for commercial health insurance business.
Noether, hired as an independent consultant by Harrisburg-based Capital Blue Cross, disagreed with Harris' assessment.
"Under the Pennsylvania Insurance Holding Companies Act, the relevant geographic market is generally considered to be the entire commonwealth," Noether said. The U.S. Department of Justice when considering mergers also will consider broader markets, she said.
Noether also disputed the contention that since neither insurer goes head-to-head with a "Blues branded" product, there was no threat of eliminating potential competition.
"Competition is not vigorous in much of the state," Noether said. "Highmark has successfully competed for business in Southeastern Pennsylvania previously, both as a competitor to IBC and in cooperation with IBC through a joint operating agreement."
However, when the former Blue Cross of Western Pennsylvania merged with Pennsylvania Blue Shield to form Highmark, the new company sold its share of two insurance products owned by both companies to Independence for $350 million, and both signed a 10-year non-compete pact. The agreement expired early in 2007, and soon after Highmark and Independence announced the merger.
"Highmark is well positioned as the strongest potential entrant to compete directly with IBC in Southeastern Pennsylvania, given its past experience competing in that region, its powerful Blue trademark that will give it immediate consumer acceptance, its existing physician network under contract in that region, and its past success in entering into direct competition with another Blues plan, as it did in Central Pennsylvania," Noether said.
"Highmark and IBC's assertion there is no competitive relationship or potential between the two companies is misleading."
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