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Insurers’ merger proposal raises thorny issues

Some fear costs, less choice; state vows tough review

By Kay Lazar
Globe Staff / January 26, 2011

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Consumers and employers, who share the cost of health insurance, were uncertain yesterday whether they would be better off if the state’s second- and third-largest insurers merge.

The bargaining clout of a larger company could help it negotiate better prices from hospitals, but one less major insurer might also mean consumers would have less choice and end up paying more, said officials of leading consumer and business groups.

“Like a town with two gas stations versus four gas stations,’’ said Jon Hurst, president of the 3,000-member Retailers Association of Massachusetts. “Two can copy each other with gas prices, but if you have four, someone is always going to be looking for the edge.’’

Health insurance plans for many small businesses are renewed during March and April, so many are now receiving notices of their yearly price increases and, once again, Hurst said, businesses are reporting hikes as high as nearly 20 percent. Many have weathered double-digit insurance price increases in each of the past five years.

But Hurst said he is hopeful that a merger of Harvard Pilgrim Health Care and Tufts Health Plan would create another strong insurer, like the state’s largest plan, Blue Cross Blue Shield of Massachusetts, to exert more leverage on health care providers to lower their rates.

The state’s largest health consumer advocacy group, Health Care for All, said paramount in any state review of the possible merger should be an assurance that patients, particularly those with chronic ailments, retain access to their doctors as the new company meshes the Tufts and Harvard Pilgrim provider networks.

“We feel strongly that continuity of care is vitally important to patient outcomes,’’ said Amy Whitcomb Slemmer, Health Care for All’s executive director.

Slemmer said that because both health plans typically receive high marks in national rankings of consumer satisfaction — Harvard Pilgrim has been voted the top health plan in the country since 2005 — she has confidence a newly merged entity would safeguard consumer choice.

But Slemmer, as did others, said she is concerned that the consolidation may mean less competition and ultimately higher costs at a time when leaders in Massachusetts and across the country are pushing toward cost controls.

If the companies go ahead with a merger plan, it will trigger a regulatory review that will include the attorney general and Division of Insurance. In a statement, Attorney General Martha Coakley said such a deal would have widespread implications for the health care market in Massachusetts.

“We will conduct a thorough review of the merger with an eye toward protecting consumers and ensuring that the new entity serves its charitable mission and conforms with antitrust law,’’ the statement said.

“Our office has been in contact with both Tufts Health Plan and Harvard Pilgrim Health Care, and we expect to receive a fuller briefing soon.’’

The state’s hospital association said a merger in an already consolidated insurance market in Massachusetts may “destabilize’’ the system by creating less competition and higher costs for patients.

“We have 116 hospitals, and most of the insurance business here is done by four insurers, one of whom [Blue Cross], does most of the business,’’ said Tim Gens, executive vice president of the Massachusetts Hospital Association.

“It’s very difficult for stand-alone hospitals to negotiate with insurers in this climate,’’ he said.

Gens said it is too soon to know whether a merger would result in more robust negotiations with health providers and less administrative waste, particularly at a time when many other changes are occurring. He noted the possible deal comes as Massachusetts is considering dramatic redesigns of the health care delivery and payment systems, with groups of hospitals and doctors merging to coordinate patient care and reduce costs.

The state’s largest hospital system, Partners HealthCare, said its main concern is patients.

Fallon Community Health Plan, the fourth-largest insurer, said it intends to remain an “affordable alternative’’ even though “uncertainty has plagued the health care market for the past year and it may be exacerbated’’ by a merger.

Kay Lazar can be reached at klazar@globe.com.