A proposal by the insurers HIP Health Plan of New York and GHI to merge into one for-profit entity would result in “substantial new health care insurance costs” for the city, Mayor Bloomberg said. Testifying in Albany yesterday, the mayor called the proposed conversion an “outrage.” But he said that if the state approves the deal, the city should see proceeds from the merger, particularly because so many current policyholders are municipal employees.

According to the executive budget, the state projects $284 million in proceeds from the conversion this year, and another $1.5 billion over the next three years. “I think the majority of this money should go to the city to cover the rate increase that will inevitably follow the conversion,” Mr. Bloomberg said.

The mayor’s comments came one day before the state Insurance Department is expected to hold hearings on the proposal, first proposed in 2006. Since last year, the GHI and HIP, which count 4 million policyholders between them, have operated as affiliates under a parent company, EmblemHealth.

In 2006, the city filed a lawsuit suit to prevent the merger. The case is in the discovery phase, a spokeswoman for the Law Department said.

At least 50 individuals, including policyholders, lawmakers, physician groups, and consumer advocates, are expected to testify today in Manhattan.

“From a consumer point of view, this deal is bad, both in terms of negatively affecting the price and quality of insurance coverage, and in diverting nonprofit assets away from their intended charitable mission,” the programs director at Consumers Union who plans to testify, Charles Bell, said.

A former GHI board member, Dr. Harold Goldberg, said: “When you consider converting from a nonprofit to a profit, you not only have the expenses of processing claims, now you have the expenses of investors. You have to set aside money for dividends.”

“All of this relates in an increased premium and a disservice to the community,” he said.

A spokeswoman for GHI, Ilene Margolin, dismissed any notion of increased rates. “Other than the normal marketplace forces, we do not expect a premium impact,” she said.

She stressed that the for-profit company would need to keep rates down in order to be competitive in the marketplace. She added that in order to stay competitive with new services and technology, the companies needed access to capital.

Some who plan to testify today said they agreed.

“We think that it is necessary for their ability to compete,” the president of the Partnership for New York City, Kathryn Wylde, said. In a statement, the Healthcare Association of New York State described its support for the conversion as an “inevitable conclusion,” given the financial challenges of funding health care initiatives, which stand to benefit from an infusion of funds into state coffers. However, the group said both insurers score below average among consumers. “It is critical that the state should seek, as a condition of conversion, specific commitments for performance improvement,” the president of HANYS, Daniel Sisto, said.