Pittsburgh Post-Gazette (Pennsylvania)

As it primps for a high-profile merger with another health insurer, Pittsburgh’s Highmark Inc. is coming off a year in which it spent more than $66 million on advertising and marketing — something that chafes the critics who question whether nonprofit Blues should spend so much money plugging their products and building brand awareness.

The majority of that $66 million, Highmark says, is promotional marketing — videos, newsletters, provider directories and such — not outright advertising.

Highmark doesn’t divulge the split between what is media advertising and what is marketing because of its proprietary nature, but several media watchdogs have estimated that Highmark is indeed spending more on TV commercials, radio spots, newspaper ads and billboards than it has historically.

Both TSN Media Intelligence and Nielsen Monitor-Plus have detected spending spikes. Nielsen estimates that Highmark’s Pittsburgh-area media spending increased from $5.2 million in 2005 to $9.5 million in 2006; part of that increase is due to the increase in the number of media outlets that Nielsen is now tracking. (By comparison, UPMC, with smaller revenues but bigger national ambitions, spent an estimated $14.2 million in advertising in 2006.)

At least $6.6 million of Highmark’s ad money was spent on TV commercials last year, Nielsen estimated. Both Nielsen and TSN arrive at their computations by observing a company’s advertising tendencies, then applying industry price estimates.

That jibes with Highmark’s own accounting — the 2006 figure for marketing and advertising was up 24 percent from 2005, when Highmark reported to the state that it had spent $53 million.

The year before, 2004, it spent just over $32 million, a year-to-year increase of 62 percent. In just two years, ad and marketing spending doubled, according to the company’s own calculations.

That’s not necessarily out of line for a sprawling company whose operating revenues totaled $10.8 billion in 2006. But even so, the growth in marketing and ad spending is outpacing overall revenue growth; 13 percent from 2005 to 2006.

Highmark wouldn’t comment on its 2007 marketing budget, but spokesman Michael Weinstein did remark on the reason for larger and larger marketing budgets.

“The main one is the changing health-care marketplace,” he said. “Consumers are taking a much more active role in health care. They are seeking and expecting more information about their health-care benefits, the best use of the health-care system and lifestyle choices.”

The emphasis on consumerism in health care is making the business much more like a retail sale to individuals as opposed to the historical practice of health insurers offering programs to employers, Mr. Weinstein said. “This trend is happening slowly and steadily and is likely to affect marketing and advertising expenses of all health insurance companies moving forward.”

Recently, Highmark — like many other health insurers — has been devoting ad and marketing dollars to reach the seniors who are participating in the Medicare Part D prescription drug benefit. It also made the point that some of its ad dollars are directly linked to its community health programs for low-income recipients, part of the Blue Cross Blue Shield social mission.

Highmark, the state’s largest health insurer, is seeking to partner with Philadelphia’s Independence Blue Cross. Combined, the two Blues would create one of the largest health insurers in the United States. Last month, the two were given a green light by the Federal Trade Commission and the U.S. Department of Justice, meaning neither agency detected any antitrust concerns that would supersede the McCarran-Ferguson Act, which gives insurance industry players limited immunity from federal antitrust laws.

The state’s Insurance Department still will have to weigh in, and the state Legislature is considering a bill that would give the state broader supervisory powers over the mergers of nonprofit insurers, which under current law are largely exempt from oversight. (The state can, however, track the mergers of the Blues’ for-profit subsidiaries.)

Industry watchdogs, the same ones who worry that the Highmark-IBC merger will reduce competition in the state, are often critical of health insurance companies, pharmaceutical companies and hospitals that try to woo customers with high-priced advertising campaigns.

“One of the chief reasons for health corporations or insurance companies to advertise is to cherry pick the market,” said Judy Dugan, research director for the California-based Foundation for Taxpayer & Consumer Rights, which trades in health-care and insurance industry reform. “They design their advertising to appeal to the healthiest and most active customers,” which drives down their own expenses, she claimed.

“The problem with nonprofit insurers is that they’re lumped in a market with for-profit companies,” she said.

Highmark’s Mr. Weinstein agreed on that last point. “While Highmark continues to fulfill its mission, we also compete every day against large, out-of-state insurance companies that are well-capitalized,” he said.

But Alwin Cassil, director of public affairs for the nonpartisan Center for Studying Health System Change, questioned how much competition Highmark really sees day in and day out. “Highmark, they already are the 800-pound gorilla,” he said.

“What are they trying to accomplish, other than trying to make people feel good about having Highmark?”

Health insurance, unlike auto or life insurance, often isn’t an insurer of choice for the customer, since he must sign up for the product offered by his employer. So while some of a health insurer’s ad and marketing spending is geared toward winning individual customers, a lot of it is about brand-building, Mr. Cassil suggested.

The state Insurance Department is collecting public comment on the Highmark-IBC merger through at least July 11. After that, the department, as well as the state Legislature, intends to hold informational hearings on the proposed merger.