Health Insurance Plan of New York, Group Health Inc. Announce Plans To Merge

From Kaiser Network.org



New York state-based Health Insurance Plan of New York and Group Health Inc. on Thursday announced plans to merge, a move that would create the largest health insurance company in New York state and raise "new questions about an expected multibillion-dollar windfall" for the state that had been contingent on HIP's anticipated conversion to a for-profit company, the New York Times reports (Perez-Pena, New York Times, 9/30). Under the merger, HIP and GHI would operate under the HIP Foundation, which would be renamed (Levick, Hartford Courant, 9/30). The foundation would include an equal number of board members from HIP and GHI (Tharp, New York Post, 9/30). The merger, which requires approval by state and federal regulators, would create a company with a combined membership of four million and combined annuals revenue of $7 billion (New York Times, 9/30). The companies will operate separately while an integration plan is crafted (New York Post, 9/30). There is no purchase price for the deal because both insurers are not-for-profit companies (Hartford Courant, 9/30). Ilene Margolin, a spokesperson for the two companies, said the merger could be finalized in late 2005 or early 2006 (Wechsler, Albany Times Union, 9/30). HIP and GHI officials plan to sign a contract soon and expect regulatory approval within two months of signing, the Hartford Courant reports.



For-Profit Conversion?

According to the Courant, HIP -- which has about 1.4 million members in New York, Connecticut and Massachusetts -- "has been hoping to go public for years" in an effort to boost its ability to compete with national insurers (Hartford Courant, 9/30). For-profit conversions require approval from the New York state Legislature. State officials' position is that they will approve such deals only if the state becomes the owner of a large portion of the merged company's stock, according to the Times. If the combined HIP and GHI were to go public under such circumstances, the state could make at least $2 billion to $3 billion, the Times reports. GHI officials in the past have said they do not wish to convert to for-profit status, but the merger plans suggest that GHI "had softened its stance," the Times reports. Howard Rubenstein, a spokesperson for the two companies, said the conversion depends on the actions of the Legislature, adding, "Conversion will be a question for consideration by the new board of directors of the consolidated holding company" (New York Times, 9/30). However, Margolin said the conversion is "something that's under serious consideration," adding, "It's very much on the radar screen" (Albany Times Union, 9/30). Charles Boorady, a health insurance industry analyst at Citigroup, said GHI "clearly is now sending a pro-conversion message to the public" by agreeing to merge with HIP. However, Sheryl Skolnick, a senior health care analyst at Fulcrum Global Partners, said the prospects for the conversion were still uncertain. "The infighting about who gets the money has been so intense," Skolnick said, adding, "We'll have to wait and see how the merged entity behaves." New York Assembly Health Committee Chair Richard Gottfried said, "I was told that HIP members of the new board would continue to advocate for the conversion. But what the GHI members would think, I have no idea" (New York Times, 9/30).



Additional Reaction

Margolin said, "As we look at the marketplace, it's characterized by more and more mergers, bigger and bigger," adding, "In order for us to compete with the national plans, we though it would be best to get together to be a strong, large, local company" (Albany Times Union, 9/30). However, Charles Bell, programs director for Consumers Union, said the size of the combined company would decrease competition for municipal contracts. More than 800,000 of GHI's 2.6 million members are municipal employees, while HIP insures more than 300,000 municipal workers, Rubenstein said (New York Times, 9/30).