Two Nonprofit Insurers in N.Y. Announce Plans To Merge
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In the second example this week of consolidation in New York City’s health insurance industry, two major nonprofit insurers announced plans to merge, creating a company with 4 million members and revenue of more than $7 billion a year.
Group Health and HIP Health Plan of New York, both nonprofits based in the city, announced their merger yesterday, two days after Indianapolis-based Well-Point, the nation’s largest health insurer, said it plans to buy WellChoice, which serves 5 million New Yorkers.
“We will be looking at the impact this merger will have on competition in the market,” said Mike Barry, director of public affairs at the New York State Insurance Department, which must approve the merger.
With its increased bargaining power, the combined company could put pressure on hospitals and doctors to lower their reimbursement rates, an analyst who covers HIP for Fitch Ratings, Bruce Cox, said.
HIP has been seeking legislative approval to turn into a for-profit corporation. “If that occurs, and the HIPGHI merger goes through, the last significant remaining not-for-profit health care insurer serving metropolitan New York will be gone,” the president of the Greater New York Hospital Association, Kenneth Raske, said in a statement.
The senior vice president for corporate affairs at Group Health, Ilene Margolin, said the merger is necessary for Group Health and HIP to compete with national insurers. “We think it’s important that people in the marketplace have the choice of a local plan with city roots,” she said.
Mr.Cox said Group Health mainly offers services through a preferred provider organization, or PPO, while HPI is primarily a health maintenance organization, or HMO, so customers of the merged company will now have more choices.
“We can do a lot of things combined that we couldn’t do separately,” Ms. Margolin said.
But Mr. Cox has concerns about the merger, because HIP is significantly more profitable than GHI. In 2004, HIP reported revenue of $3.2 billion and net income of $179 million, according to Fitch. GHI, by contrast, reported net income of $15 million on $2.3 billion in revenue. Those figures do not include subsidiaries.
“The numbers are the numbers,” Ms. Margolin said. “We see this as an extremely strong enhancement to HIP and GHI.”
Customers should not see any immediate changes, since the two companies will continue with separate operations while developing an integration plan.
