Insurance Mergers Can Lead To Mixed Results For Consumers, Companies

BOSTON — Harvard Pilgrim and Tufts Health Plan say they’re exploring a merger. This would help the companies compete with Blue Cross Blue Shield of Massachusetts, currently the largest insurer in the state, but not everyone thinks the union is a good idea.

Tufts and Harvard Pilgrim have signed what’s called a non-binding memorandum of understanding — in the dating world you might call this courting. They say a union could reduce health care costs and slow increases in premiums. But some health care experts say it’s not clear that’s true.

Meredith Rosenthal researches health policy reform and competition among health care providers. She is a professor at Harvard University’s School of Public Health.

“On the one hand, more consolidation of health insurers could raise premiums for consumers under the standard theory of monopoly power. On the other hand, however, there are important benefits to size in health insurance,” Rosenthal said.

For example, a united company could share administrative costs and find efficient ways to adopt health care reform measures. And a bigger insurance company would be able to better negotiate reimbursement contracts with hospitals and doctors.

The ability to negotiate down the costs of procedures with hospitals is key, according to Anya Rader Wallack. She is in charge of health reform for the state of Vermont. Before that she headed the Massachusetts Medicaid Policy Institute.

Wallack said this merger could be good for Massachusetts, but it depends on the state Attorney General Martha Coakley, and how deeply she vets the proposal.

A 2009 analysis shows that premiums increased 7 percent after two big health insurers merged. That’s because hospitals responded by banding together, and they were able to charge more for their procedures.

“She has to look at not just what do they promise, but what is their capability? So can they back up that promise, without compromising health care quality?” Wallack said.

Meanwhile, it’s clear hospitals are worried about this shifting landscape. While there are a number of smaller insurers operating here, this merger would mean the field would narrow to two big ones.

“If we’re coming to a place in Massachusetts where there are only two insurers, that does raise serious concerns,” said Tim Gens, the executive vice president of the Massachusetts Hospital Association.

“If they are not able to be in a situation via the negotiation table, and be fair and have a balanced negotiation. Then again, that could ultimately destabilize the health care delivery system, and again, that’s neither good for those who provide care of those who pay for care or those who receive care,” Gens said.

This is exactly what worries Harvard Business School health care economist Regina Herzlinger. She thinks a merger will set off an arms race between insurers and hospitals.

“Here’s what happens: An 800-pound gorilla comes into your neighborhood and says, ‘Unless you pay me some money, I’m going to beat you up.’ So what are you going to do? You’re going to become an 800-pound gorilla yourself and then when that big insurer shows up and says, ‘Cut your prices or else,’ you’re going to say, ‘Or else what? I’m just as big as you. What the heck are you going to do to me?’ ” Herzlinger said.

Herzlinger pointed to a 2009 study of consolidation in other states. The National Bureau of Economic Research published an analysis showing that premiums increased 7 percent after two big health insurers merged. That’s because hospitals responded by banding together, and they were able to charge more for their procedures. So the insurers may want to bring down costs, but she said joining forces isn’t going to do it.

Massachusetts’ attorney general and the state’s Division of Insurance will review the final plan and decide whether to allow a merger.

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  • ITConsultant

    As a seasoned IT health care professional, going on three decades of experience, I can tell you that there is much cost savings to be had on the info tech side for both TAHP and HPHC. I have been employed by both. A merger completed correctly on the IT side with the right platform and people will save millions yearly. As both being non profits, it is had been sickening to see how both organizations have been mismanaged in their infrastructure services etc. etc. over the past two decades. Witnessed the Pilgrim merger, the HCHP computer debacle, the Receivership, bad choices on platforms (HPHC is currently running its core insurance application on an obsolete computer system which is no longer supported by Hewlett Packard!!) but one of my pet peeves is the mis-management of people at both organizations. There are too many employees at both that are paid very well to cruise the internet,talk on the phone all day socializing, work from home and do nothing, walk around all day looking for a free lunch, disappearing for hours or just coming in for a hour or two and leaving for the day etc. etc. etc. Dead wood needs to be trimmed. Computers in the workplace are suppose to make us all productive and cut cost not create useless and meaningless jobs funded by HMO members. I hope who ever ends up running the merger show brings in NEW management to fix the IT side of things and make it lean and mean!

  • Irish

    Might be a way to lower all the money paid by legal residents because of free care given to ILLEGAL residents. Hospitals should ask for proof of citizenship or legitimate immigration work papers before any medical services. Free care for illegals is the biggest budget nightmare in MA, Our taxes are a;ready too high because of it. What doesn’t the state government understand.
    This is the perfect time to start shutting off the faucet that pours welfare money , food stamps and free health care on illegals and then expects legal working immigrants and Americans to pay for it.
    Our hospitals and medical services are a magnet.

  • http://www.facebook.com/people/Buddy-Paul/100002025254217 Buddy Paul

    The “Wise Health Insurance” is quite popular in California and New York. For example it offers the low income health plan. Also offers health insurance for individual with pre-exisiting conditions.

  • Realist

    This merger is BAD for everyone. First of all, it is not the Insurance Companies that are the bad guys here. The bad guys are the costly teaching hospitals as well as certain community hospitals that are isolated from any competition. These Hospitals hold all the cards, not an Insurance Company with 3M or even 2M participants. Also, it is a well known fact in my industry that all of these Insurance Providers reimburse these Hospitals at ridiculously high levels- there is no real benefit of being large, when these Hospitals hold all the cards.

    Recently when I was looking at a common CPT code for reimbursements through certain Hospitals, we had a $25,000 differential !! In other words, if you went to one of the aforementioned Hospitals, the Insurance Company would be forced to pay that Hospital $25k more in reimbursements than they would reimburse a non teaching hospital or a hospital not located in a choice location for the same procedure !!

    The only savings they would achieve would be econmies of scale and therefore the merger would displace a few hundred Tufts and HPHC employees into the MA. unemployment lines.

    As a group insurance broker, I insure my clients with Tufts, HPHC, and BCBS. The difference in rates and plan design for the same employer group are always differrent. Each Insurance Company looks at each risk very differently. There are too many variables that each insurance company looks at when they quote on a group. Here are just a few :

    1. The group’s SIC Code.
    2. The group’s prior experience data.
    3. The group’s Provider history
    4. The group’s Rate history.
    5. The group’s average age.
    6. The group’s Age/Sex Slope.
    7. The groups Single to Family ratio.
    8. The insurance provider’s zeal to write new business.
    9. The insurance provider’s internal incentive’s to write business.

    Thes are some of the reasons that I get three very different rates and plan designs for the same employer group when I go to these three insurance companies.

    By eliminating one of these insurance companies, you are going to lose one of only three real options available in MA..

    This is bad for the employers of MA.. fewer choices will ultimately lead to inevitable collusion, especially when the market consists of only two insurance companies ( see MI BCBS ).

    Follow the money, who has the deeeep pockets to fund three multi-million dollar construction projects at one time in the State of MA.. Pretty remarkable when commercial buiding is down 64% in MA……… Partners in crime……

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