Harvard Pilgrim Health Care and Tufts Health Plan have signed a memorandum of understanding as the first step in a process that would merge the two health care providers, a move that would consolidate the respectively second and third largest insurers in the state of Massachusetts.
The two nonprofit health insurance providers stated in a joint press release last week that a final merger decision is anticipated in the next several months.
The memorandum of understanding, signed by both providers last week, serves as a prerequisite to discussions between the two as to the particulars—and feasibility—of the merger itself. Among other things, the providers stated in the press release that the two companies will use this time period to explore possible benefits of a merger to consumers.
Harvard Pilgrim spokesperson Sharon Torgerson said that the two companies hope to remove administrative duplication and “get value to the clients” through the merger.
If a merger agreement is reached, a regulatory review process will begin in all states in which the two plans operate. While a majority of the two companies’ clients reside in Massachusetts, Harvard Pilgrim also operates in Maine and New Hampshire, while Tufts also operates in Rhode Island.
In Massachusetts, the merger will be reviewed by both the Office of Consumer Affairs and Business Regulation and the state Attorney General’s office.
“The Division of Insurance will give a merger a very close look after a proposal is received. There will be a thorough review of the criteria as outlined in state law,” Jason Lefferts, the director of communications for the office of consumer affairs, wrote in an e-mailed statement.
“It’s going to be a complex approval process because there are so many regulators involved,” said Harvard School of Public Health Professor and former state insurance regulator Nancy C. Turnbull.
She added that despite the obstacles facing a merger on this scale, she expects the deal to pass regulatory review.
The proposed merger has the potential to shift the competitive nature of the state’s health insurance market.
“Massachusetts is really unusual among states,” Turnbull said. “It’s dominated by three locally-based, nonprofit heath care providers. Large for-profits have very little market share.” Turnbull added that she hoped the merger would help preserve Massachusetts’ landscape of not-for-profit health care providers.
Currently, the largest health care provider in Massachusetts is Blue Cross Blue Shield, with about three million members. Harvard Pilgrim has about one million members in state, and Tufts has about 750,000. The combined Harvard Pilgrim/Tufts plan would be on a scale more on par with Blue Cross, and thus would be able to compete more effectively in the marketplace. All three firms are not-for-profit.
“People may think they’re preparing to be merged to be larger and compete with Blue Cross,” Turnbull said. “Doing this will give them more market power.”
Out-of-state employers have been growing in numbers in recent years in Massachusetts, which has also led to an increased use of out-of-state health care providers. The merger between the Harvard and Tufts plan may help to increase the companies’ “presence,” Turnbull said.
Harvard Pilgrim Health Care was rated the number one private health plan in the nation by the National Committee for Quality Assurance in 2010, and Tufts Health Plan was rated second.
Harvard Pilgrim maintains the Harvard Pilgrim Health Care Institute at Harvard Medical School.
—Staff writer Benjamin M. Scuderi can be reached at email@example.com.
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