The state's two biggest health care insurers, Pittsburgh-based Highmark Inc. and Philadelphia-based Independence Blue Cross, are joining forces, creating one of the biggest health insurers in the country.

		Graphic: The companies compared

The merger of the two nonprofit giants, which together control more than 50 percent of the state's insurance market, was unveiled yesterday but was two years in the making, officials said. An announcement had been expected in recent days after word leaked out that directors were meeting to consider the deal, which they did separately, each approving it unanimously.

The new company will operate dual headquarters in Pittsburgh and Philadelphia, executives said. Highmark Chief Executive Officer Kenneth Melani, 53, will become CEO of the combined company, while Independence Blue CEO Joseph Frick, 54, will be president and chief operating officer. Both men will maintain offices in both cities, a spokesman said.

Independence Blue's chairman of the board, M. Walter D'Alessio, will continue to serve in that post for the merged company, while Highmark's board chairman, J. Robert Baum, will be vice chairman.

No layoffs are planned as a result of the merger, executives said, adding they anticipate any jobs cuts would be handled through attrition and reassignments.

The combined company would employ 18,000 in Pennsylvania and 28,000 nationwide.

The potential merger of the two companies has been talked about for years, sparking concerns among industry observers that the considerable clout of the combined company would further diminish competition in Pennsylvania and lead to higher insurance premiums for employers and consumers.

Yesterday, the two companies sought to soothe those fears, promising that the new, larger entity would use operating efficiencies to produce "$1 billion in economic benefits" for Pennsylvanians.

Specifically, Highmark and Independence Blue said they would hold administrative fees flat for two years, "resulting in direct savings to customers of $300 million"; have the clout to negotiate lower prices with prescription drug companies, saving customers $280 million; and extend commitments to contribute millions to community health programs in the state, including the state's adultBasic health insurance program for the uninsured.

Under a 2005 agreement with the governor, the four Blues in Pennsylvania agreed to contribute nearly $6 billion over six years to community health programs. The merged company would voluntarily extend that commitment for an additional three years, although executives wouldn't give a dollar amount.

"This combination is great for our customers, our providers, our employees, our communities and for Pennsylvania," said Dr. Melani, a physician who has run Highmark since succeeding John S. Brouse in January 2003 and who, over the past year, has been open about saying Highmark and Independence were talking merger.

Others weren't so sure about the proposed benefits. Concerned about the potential impact on competition, the state Senate yesterday approved a bill that would give the Insurance Department more power over mergers involving nonprofit health care insurers like Highmark and Independence Blue.

The department, which helped draft the bill, already regulates Highmark and Independence Blue subsidiary companies, but the law currently exempts holding companies from state scrutiny.

"Giving the department oversight power is an important step in ensuring that mergers of these companies do not result in a virtual monopoly in the industry," said Sen. Don White, R-Indiana, chairman of the Senate Banking and Insurance Committee and sponsor of the bill.

Mr. White said he was worried that the merger "could create a single, multibillion-dollar, mega-entity which would crush what little competition remains in Pennsylvania's health care insurance market."

He urged swift approval of the bill, which would be retroactive to Jan. 1.

Mr. White also said he likely would call a public hearing on the proposed merger.

The deal will need clearance from state insurance departments where the companies do business, Dr. Melani said.

The U.S. Justice Department and state attorney general's office will be reviewing the deal for antitrust and charitable trust issues.

Dr. Melani said there was no timetable for completing the merger.

Executives have not yet settled on a name for the new company, but said whatever they decide on will include the Blue Cross and Blue Shield name and logo.

"The cross and shield name will remain with us," Dr. Melani said. "It's one of the most recognized brands in the world, equivalent to Coke, McDonald's and Visa."

Executives said there were no plans to follow many other Blues across the country and convert the merged entity into a for-profit company.

"One of the principal reasons we worked on this deal is to maintain our nonprofit status," Dr. Melani said. "The boards are committed to that. There never were discussions about converting to for-profit."

For-profits typically strive for higher margins to please shareholders. Some fear that if the company were to flip to for-profit status, reimbursements to doctors and hospitals would fall and insurance premiums would rise.

Various concerned parties yesterday weighed in on the proposed merger.

The Pennsylvania Medical Society issued a statement saying it supported the Senate's bill giving the Insurance Department more oversight power and would "closely monitor the proposed merger and articulate our concerns."

The Hospital & Healthsystem Association of Pennsylvania said it would be watching, too.

"Hospitals and health systems will participate in the regulatory approval processes," the association said.

"We will be looking for detailed analyses ... [about] the proposed merger on communities, patients, hospitals and other health care providers across the state."

Together, the two insurance giants would rank No. 3 in the nation, behind UnitedHealth Group of Minnetonka, Minn., and WellPoint Inc. of Indianapolis, according to data from the National Association of Insurance Commissioners.