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Tufts Health Plan and Harvard Pilgrim Health Care, the second- and third-largest health insurers in Massachusetts, respectively, say they plan to merge.
The still-to-be-named entity would have nearly 2.4 million members in Massachusetts, Maine, Connecticut, New Hampshire and Rhode Island.
"Our communities and consumers today face four major hurdles in health care: affordability, access, quality of health and a fragmented health care experience across various stakeholders and health systems. Through our shared vision, we believe we can tackle these issues and bring more value to the communities we serve,” Tom Croswell, president and CEO of Tufts Health Plan, said in a press release Wednesday.
Croswell would run the combined organizations as CEO. Harvard Pilgrim's president and CEO, Michael Carson, would be the entity's new president.
Joyce Murphy, who chairs the board at Harvard Pilgrim, would lead a new board with an equal number of members from both insurers.
“Through the combination of two strong organizations with a commitment to non-profit health care in New England, we will be able to provide even greater value to consumers, as well as improve access to care throughout the region,” Murphy said in a statement.
The deal is subject to state and federal antitrust review. Massachusetts Attorney General Maura Healey could also assess the impact on consumers and the broader health care market.
"Our office has been in touch with both parties and will review the proposed transaction as more information becomes available," said Meggie Quackenbush, spokeswoman for Healey.
Tufts and Harvard Pilgrim say together they could trim expenses and make insurance more affordable.
But research out of Harvard Business School shows insurance mergers lead to higher premiums. Study co-author Leemore Dafny says there may be other factors that would affect premium prices if Harvard Pilgrim and Tufts merge.
"I would expect they will argue that they'll be more effective rivals to Blue Cross [Blue Shield of Massachusetts] following the transaction and that's an argument the antitrust authorities will have to evaluate," Dafny said.
Blue Cross has 40.6% of the commercial insurance market in Massachusetts, as compared with 12.6% for Tufts and 12.4% for Harvard Pilgrim. Data from the Center for Health Information and Analysis also shows Harvard Pilgrim enrollment dropping steadily for the past four years. The merged insurer would still be smaller than Blue Cross, which has 2.8 million members.
Dafny points to similarities between this proposed deal, where two smaller players plan a merge to become more competitive, and the recent creation of Beth Israel Lahey Health to compete with Partners HealthCare.
"I think there's a similar logic going to be suggested for this transaction," Dafny said.
MIT health economist Jon Gruber says Massachusetts is in a cycle where one merger leads to another, with each new entity arguing it has to get bigger to compete with the prior merger.
The question, says Gruber, is: When does a regulator say no?
"Any given merger you could look at and say, 'Well, this one might make sense,' but then all of a sudden you find yourself with this incredibly concentrated health care sector that's got incredibly high prices," Gruber said. "I can't tell you why this would be the right one to put your foot down on but I can tell you at some point we need to do that."
In a statement, Blue Cross said the key questions for regulators should be whether the merger would make insurance more affordable and maintain choices for consumers.
The state's largest consumer group, Health Care for All, declined to take a position on the merger.
"We're going to closely monitor the proposed merger so we can understand how anticipated efficiencies will translate into lower costs for consumers, broader networks and increased community investments," said HCFA executive director Amy Rosenthal.
The state Division of Insurance will also review this proposed merger to make sure there are no disruptions for consumers.
“The Baker-Polito Administration believes that any merger of healthcare companies should result in greater transparency, lower prices and better outcomes for patients," said Brendan Moss, a spokesman for Gov. Charlie Baker.
Executives at Tufts and Harvard Pilgrim declined requests for interviews.
In the press release, they say having accounts in five states would help them manage health care needs more efficiently and invest in programs for specific types of patients. Offering regional coverage may help Tufts and Harvard Pilgrim compete with some of the national for-profit insurers.
The two insurers considered merging in 2011 but did not finalize a deal. The leadership at both organizations has changed since then.
Last year, Harvard Pilgrim was in talks with Partners HealthCare, the largest hospital network in Massachusetts, about a possible affiliation but tabled those plans about five months later during a leadership transition at Partners.
This segment aired on August 14, 2019.
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