Continuing a merger wave sweeping the health insurance industry, New York nonprofits Group Health and HIP Health Plan of New York have agreed to combine under a governing foundation, creating a giant insurer that can compete against national firms and is well-positioned to convert to for-profit.
The proposed unnamed new company will succeed WellChoice, the parent of Empire Blue Cross and Blue Shield, as the largest health insurer based in New York state, based on revenues. The combined nonprofit company, located in New York City, will have total revenues of more than $7 billion and more than 4 million members in New York, New Jersey, Connecticut and Massachusetts -- including in Western New York.
The new parent company, currently the nonprofit HIP Foundation, will be renamed and the board will include an equal number of directors from both firms. The companies will operate separately until an integration plan is developed.
Members will have a wider range of products and provider networks in four states. Officials said that the companies would still focus on improving access to quality health care, developing innovative products, helping the uninsured and supporting community service and health care charities.
But with its new size, it will be better able to compete against national rivals like Indianapolis-based WellPoint, Hartford-based Aetna and Philadelphia-based Cigna Corp., who have grown by acquisition and dominate the market. Just this week, WellPoint, the nation's biggest health insurer, agreed to buy WellChoice and its 5 million members for $6.5 billion.
"It's prompted by a recognition of where the marketplace is," said Ilene Margolin, senior vice president and spokeswoman for GHI. "The consolidations make it really very difficult for a small local plan to survive. We'd need a large enough market share to be a strong plan.
"We believe the new company will be a local alternative to the national plans, strong enough to compete, but with the local roots and mission. Down the road, we'll be one company with many, many products."
No money is being exchanged. A definitive agreement must still be signed, and the deal must win regulatory approval. But officials hope to complete the process early next year.
HIP does not have any membership in Western New York, but GHI serves 277,000 in Buffalo, Syracuse, Rochester and Watertown. That includes 5,000 in its preferred provider organization (PPO) in Western New York, and 20,000 for dental coverage.
Its PPO is offered statewide, and is part of the Lake Plains Plan being promoted in Genesee, Orleans and Wyoming counties. It wants to expand its HMO to Erie, Niagara and Chautauqua counties, but has not yet received state approval. However, it plans to pursue growth here after the merger.
"Upstate is very much on our agenda," Margolin said. "We'll have a full range of products for upstate that people can take advantage of."
GHI currently has a small sales office on Broadway in Buffalo, with a dozen employees, and a customer service call center in Syracuse with 200 workers.
Still, local insurers aren't worried. "They haven't been a threat thus far," said Alphonso O'Neil-White, president and CEO of HealthNow New York, parent of Blue Cross Blue Shield of Western New York. "This is a merger that gets them some critical mass. I don't think that upstate will be the focus of the consolidated company."
"We're seeing a lot of mergers but the best solutions for a particular area come from the health plans that know that community, can partner with the physicians and understand the market better," said Frank Sava, Independent Health Association spokesman.
This is the latest health care merger in the region. UnitedHealth Group of Minneapolis bought Connecticut's Oxford Health Plans, while HIP bought ConnectiCare earlier this year. MVP Health Care of Schenectady is now buying Rochester-based Preferred Care.
"The merger is really a rational response to what's going on in the marketplace generally," said Betsy Stoll, director of development and legal for Community Catalyst, a consumer health care advocacy group based in Boston. "It's all about the battle of the titans, it seems. I certainly can't fault them for trying to survive."
But experts say this deal, coming on the heels of WellChoice, could spur remaining nonprofits to review their options.
"These two mergers will create more pressure in New York State for insurance organizations to get bigger," said Barbara Vogel, a consultant at Treo Solutions in Albany.
The merger also adds to the possibility that the combined company could opt to convert to a for-profit firm. That could strengthen its financial position -- giving it access to capital markets -- and bring enormous proceeds to the state. But it could also position it to be acquired, as WellChoice was.
"After they do combine, they will probably very quickly convert to for-profit, and then I think United will come in and buy the combined company," said Micaela Brown, analyst for HealthLeaders-InterStudy, a Nashville research firm.
The companies did not indicate plans to convert Thursday, but HIP has been seeking such a move in order to compete against its better-funded, larger national rivals. And WellChoice's controversial but successful conversion in 2002 has paved the way, experts say, although further legislation must be passed first.
"At such a time when that's a possibility, it will be at the forefront of consideration," Margolin said.