Independence Blue Cross and Highmark said Wednesday that they have called off their planned merger, a union that would have created the largest health insurer in the state.
The announcement comes just a few days before the Jan. 27 date that, under state regulatory procedures, was the earliest Pennsylvania Insurance Commissioner Joel Ario could have rendered his decision on the Blues? merger.
The state Insurance Department was looking at approving the plan only if the combined company operated under either Pittsburgh-based Highmark's Blue Shield label or Philadelphia-based IBC's Blue Cross trademark. That would have allowed another Blue Cross or Blue Shield plan, either already in the state or from outside the region, to compete in the Philadelphia and Pittsburgh markets.

Joseph A. Frick, IBC's president and chief executive officer, and Kenneth R. Melani, president and CEO of Highmark, issued a joint statement Wednesday that read:
?During the last 21 months, our proposed combination has been closely examined in an unprecedented, wide-ranging, and open review with extensive public comments, outside expert analysis, and 10 public hearings. However, in recent days, it became clear to us that despite the well-documented advantages of the consolidation for our customers and our communities, the Insurance Department would not approve the transaction because of its belief that there would be an adverse impact on competition. We fundamentally disagree: we have shown that the combination would not lessen competition in our markets. In fact, the U.S. Department of Justice examined the competitive effects of the proposed combination on two separate occasions and cleared the transaction each time.

?While we believe that the combination as originally proposed would have been of great benefit to all of our stakeholders, we concluded that giving up one of our brands would preclude the new company from delivering to our customers, communities, and the commonwealth the full results we had projected. This is genuinely disappointing.?

Frick and Melani noted that at a hearing on the proposed merger last summer, they made it clear they would not relinquish the use of either the Blue Cross brand or the Blue Shield brand.
Frick, at a hearing in Philadelphia, called the idea of giving up its Blue Cross trademark a ?nonstarter,? saying IBC would not ?at any price? be willing to give up a brand it has spent the past 70 years building to an outside competitor.
At the same hearing, Highmark CEO Kenneth R. Melani said such an action would create brand confusion, which Highmark has experienced first-hand in central Pennsylvania ? where the company has competed for the past five years with Capital Blue Cross and has yet to realize a profit.

Ario issued his own statement Wednesday afternoon saying, ?We welcome the applicants? decision to withdraw their proposed consolidation. We were prepared to issue a disapproval order on Jan. 27, but this withdrawal smoothes the process and allows all parties to focus on the challenges we all face in addressing the larger health-care crisis.? The disapproval would have been based on the refusal by Highmark and IBC to operate under just one Blue trademark.
IBC and Highmark first proposed joining forces in March 2007. The union would have created a company with 18,000 employees, $22 billion in operating revenue and about 7 million members.
The companies argued the merger was necessary to provide savings and operating efficiencies they needed to invest in new technologies and products so the companies can compete with national publicly traded companies that are increasingly grabbing more market share. IBC and Highmark said the combined companies would have generated more than $1 billion in savings and revenue growth, over six years, that would have allowed them expand ?access to affordable, quality health-care coverage for Pennsylvanians.?

Their plan called for the combined company to maintain dual headquarters in Philadelphia and Pittsburgh. Melani was to have been CEO of the combined company; Frick would have been president and chief operating officer.
Critics of the plan maintained allowing the union would have stifled competition and made it harder for health-care providers, doctors and hospitals to negotiate contracts.
?This merger would permanently eliminate each other's biggest potential rival,? said Henry S. Allen Jr., a lawyer for the American Medical Association during a hearings on the proposal. ?By merging, IBC and Highmark would be under no pressure to innovate.?

The companies said they will continue to work together and look for opportunities to collaborate with other Blue Cross and Blue Shield plans, the insurance department, the governor, the state General Assembly and "other key stakeholders" to improve access to "affordable, quality health care."