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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.
More Merger Coverage:
This program aired on January 26, 2011.
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