Melanie Reber
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Reuters Pennsylvania's 2 Largest Health Insurers to Merge By Jon Hurdle
PHILADELPHIA (Reuters) Mar 29 - Pennsylvania's two largest health insurers, Highmark Inc. and Independence Blue Cross, said they have agreed to merge to form a company which will provide health insurance to about 8 million people.
In a joint statement on Wednesday, the non-profit companies said the combination will reduce drug costs by $280 million and generate administrative savings of $300 million. They also said they would provide some $650 million to help expand access to health insurance for Pennsylvania's uninsured.
"We view the merger as a good strategic fit for Highmark, as it improves the company's competitive position by means of increased operational scale and expanded geographic coverage," Standard & Poor's credit analyst James Sung said in a research note.
Overall revenue diversification will improve, as Highmark and Independence Blue Cross have minimal geographic overlap within their core markets, and both generate some out-of-state and ancillary health business, the analyst said.
S&P said the combined company will be the third largest U.S. operator of Blue Cross Blue Shield health plans behind WellPoint Inc. with about 30 million members, and Health Care Service Corp., with more than 11 million members.
Highmark Chief Executive Kenneth Melani will become CEO of the combined company. Joseph Frick, CEO of Independence Blue Cross, will become president and chief operating officer.
Frick said the new company, which will employ about 18,000 people and be headquartered in Philadelphia and Pittsburgh, will be in a better position to contain rising health care costs.
"By combining our two organizations, we will be better able to maintain affordable programs, meet shifting consumer demands for new products and fund essential technological and infrastructure improvements," Frick said.
Acting Pennsylvania Insurance Commissioner Randy Rohrbaugh said in a statement regulators will seek to ensure consumer protection in their evaluation of the deal.
The companies will seek approval for the transaction from state and federal regulators starting in April and will operate separately until the deal is cleared, the statement said.
Reuters Health Information 2007. � 2007 Reuters Ltd.
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