Harvard Pilgrim Health Care and Tufts Health Plan have signed a memorandum of understanding to explore a merger of the two health plans.
If the merger goes through, it would mark the joining of Massachusetts' second and third largest insurers, insuring roughly one out of every three residents in the commonwealth, and leave Blue Cross Blue Shield as the only major health plan in Massachusetts. Harvard Pilgrim also operates health plans in New Hampshire and Maine.
"Harvard Pilgrim Health Care is continually looking for ways to improve quality and control rising costs while serving our members, and this is the right time to explore how we might share that goal as a combined organization," said Eric Schultz, president and CEO of Harvard Pilgrim, in a statement announcing the talks. "We feel that a regional health plan will create value for the customers, employers and the communities we serve as well as the broader healthcare marketplace."
Insurers are coming to grips with the new competitive landscape under health reform. Mergers and acquisitions among hospital groups and provider networks have been been fueled by the need to lower costs of providing care. Now, health reform may be pushing insurers to do the same in an effort to keep administrative costs in line to meet the law's medical loss ratio requirements, while also providing leverage for health plans to negotiate better deals with provider networks.
[See also: Spending on healthcare M&A rises 44 percent; Massachusetts health system seeks to change ownership]
Some are questioning whether a merger that will reduce the number of major health plans in the commonwealth from three to two will provide more or less competition for the largest insurer, Blue Cross Blue Shield.
Rosemarie Day, president of Day Health Strategies, a Boston-are healthcare consulting firm, said the merger talks "show that Massachusetts is getting serious about containing healthcare costs. Between the fact that they'll be able to have more clout in terms of being able to negotiate with providers and reduce administrative costs is a hug step in the right direction."
Nancy C. Turnbull, associate dean at the Harvard School of Public Health and a former deputy insurance commissioner, told the Boston Globe that she sees the potential benefit a larger plan would have in negotiating with providers, but worries about reducing the number of large health plans.
"There has been tremendous value in having three strong locally based health plans in terms of choices for consumers,'' she said.
Massachusetts-based healthcare advocacy group Health Care For All is also keeping a close eye on the talks, said Executive Director Amy Whitcomb Slemmer. "It's important that in the middle of these talks that we also keep the patients in mind, to make sure they will continue to have the same access to quality care should the two merge," she said.
According to the memorandum, should the talks lead to a merger, Jim Roosevelt would hold the position of CEO and Eric Schultz that of president and COO. Two years after the merger, Roosevelt would become executive board chairman and Schultz would assume the position of president and CEO.