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McClatchy-Tribune  06/22/2014 8:10 AM ET
UPMC vs. Highmark: Who's risking more? [Pittsburgh Post-Gazette :: ]

June 22--Should UPMC and Highmark indeed go their separate ways Jan. 1, both will survive the trauma.

But will either of them thrive?

Each of the Pittsburgh health care giants will sustain damage from the split, local and national experts say. Highmark Health, despite posting an operating loss and flat premium revenue in 2013, may be better prepared for a divorce given its multistate health insurance presence, its diversified business portfolio and its larger revenue base.

Yet, don't count out UPMC, which controls most of the region's hospital beds and doctors. The system is expecting the next six months will bring about a hoped-for -- but a not-yet-materialized -- mass exodus of Highmark customers, who could defect to its UPMC Health Plan or one of the national insurers active in the region in order to keep their full UPMC system access.

"There are so many variables at play here," said Kenneth T. Gacka, a director and corporate ratings expert at Standard & Poor's. Based in California, he graduated from the University of Pittsburgh and its Joseph M. Katz Graduate School of Business, and he worked in the health care sector locally.

"There's risks on both side of the equation, and there's a considerable amount of time before this all plays out," he said.

Despite all the market uncertainty, Mr. Gacka said, this much seems clear: Both companies stand to lose bread-and-butter business.

Highmark will take a hit on the insurance side, because area commercial customers who wish to keep full UPMC access would have to switch insurance companies. UPMC's hospital division would certainly lose patients, as those who keep their Highmark commercial insurance are forced to seek care in other systems.

"Commercial" insurance refers to all employer-provided and individually purchased health plans. (Government-subsidized plans -- Highmark's Medicare, Medicaid and Children's Health Insurance Plan customers, about 37 percent of the local market -- are generally unaffected by the contract rift.)

The commercial policyholders are the ones being tussled over.

Highmark says it is maintaining its grip on the market, while UPMC says that, by 2015, many customers will flip -- either because their employer will newly offer an alternative to Highmark or because their employer already does so and the patient will choose a new plan when the open-enrollment period begins in the autumn.

If everything breaks the way UPMC hopes, 92 percent of the commercial market will, at the very least, have a non-Highmark option that includes full UPMC access.

Whether patients actually select that option is a different story. "It all comes down to who is more successful competing for those same lives," Mr. Gacka said.

That competition could hinge, he said, on whether patients and business clients are shopping for value or for a network.

For value shoppers, Highmark thinks it has the edge in the long run, because its hospitals are lower-cost than UPMC's. But if the shoppers want a bigger care network, UPMC's is the biggest one around.

The insurance side

UPMC Health Plan, the insurance carrier arm of UPMC, has been building its commercial insurance customer base for years. The number of health policyholders stands at more than 483,000, according to the nonprofit's most recent quarterly statement. By the end of this summer -- when the numbers from the July enrollment period are tabulated -- enrollees should exceed half a million and a bigger jump should come at the end of this year, said UPMC spokesman Paul Wood.

Even though "Highmark has done everything it can to muddle the market and confuse employers, UPMC Health Plan is still expecting continued growth in commercial membership for the July 1 enrollment, but not necessarily the 'big shift,'" he said. "Most employers renew their employee health insurance plans in the fall for plan years starting Jan. 1, which is when everyone expects to see the big shift in the market occur."


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