Two of the city’s last remaining nonprofit health insurers are awaiting final approval from the state on a plan to convert into a single for-profit company, a move that many predict could lead to higher health care costs for half a million New Yorkers and serious budget problems for the city.
Last April the state legislature signed off on a plan to allow Health Insurance Plan of Greater New York (HIP) and Group Health Inc. (GHI) to convert into a single for-profit company, EmblemHealth. HIP and GHI are New York City-based companies that together serve about a third of the city’s health care market, according to the Independent Budget Office of the City of New York, including government employees, union members, small business owners and Medicaid and Medicare recipients. That includes more than 500,000 city employees and retirees and 4 million people statewide.
It is now the responsibility of the superintendent of the New York State Insurance Department to make a final decision regarding the plan. More than 100 policy holders, advocates, union officials and others filled a public hearing last week at HIP headquarters on Water Street in lower Manhattan, while an overflow crowd in the lobby was turned away. Nearly all the speakers at the Jan. 29 hearing urged the superintendent to reject the plan. This was one of the last steps in a review process first announced in December, leading many to criticize what seems like a hurried timeline.
“Conversion to for-profit status is precisely the wrong direction to go,” Leonard Rodberg, research director for the NY Metro Chapter of Physicians for a National Health Program, said at the hearing.
A number of critics argued that by converting to for-profit status, EmblemHealth would be subject to the market pressures that would force them to hike premiums and scale back services for members. One fear of consumer advocates is that the conversion of HIP/GHI would continue a trend of market concentration in New York’s health care industry, reducing competition and raising prices accordingly. The city filed a lawsuit in 2006 to prevent the initial merger plans of HIP and GHI for this very reason. The lawsuit is still ongoing.
The conversion would not just be a technical change, added several speakers, but also a basic transformation of the company’s public service mission. “It will cause a fundamental and irrevocable shift in the allegiance and duties of the managements of HIP and GHI from the long-term health of the city’s employees, to shareholders, whose only concern is profit,” Deputy Mayor for Operations Edward Skyler said at the hearing.
Municipal government has a lot at stake regarding the conversion. About 93 percent of the city’s workforce is covered under HIP or GHI, for whom the city pays basic premiums at a cost of more than $4 billion every year, said Skyler. If premiums increase at the rate many predict, the city would be left footing a bill of up to $200 million more per year, according to city estimates.
Several local unions whose members rely on HIP or GHI coverage, including the Patrolmen’s Benevolent Association, the United Federation of Teachers and the Office and Professional Employees Local 153, also have expressed concern about the plan and are monitoring the situation closely, said spokesmen for the groups.
For its part, EmblemHealth argued at the hearing that the conversion is a necessary step for it to remain a viable health care company. “We’re certain that the increasing dominance of large, national, for-profit companies requires that we convert from not-for-profit to for-profit corporate status,” chairman and CEO Anthony L. Watson said in his testimony.
With a new corporate status, EmblemHealth could raise capital more easily and therefore develop new products, offer better services and expand the business, said Watson and other company representatives. They also committed to maintaining current rates and levels of coverage for members.
Kathryn Wylde, president and CEO of the Partnership for New York City, a business group, was the only speaker at the hearing to come out in support of the conversion. “HIP/GHI is a merger of two important New York City institutions that, together, are in a position to continue to provide locally based health care coverage,” Wylde said. “We should come together to support this plan to strengthen their role as a partner in meeting the health care needs of New Yorkers.”
New York Health Plan Association President and CEO Paul Macielak voiced his support at a separate hearing in Albany. HIP and GHI are both members of the association, but that’s not the only reason for Macielak’s stance, spokeswoman Leslie Moran said after the hearing. “It’s a marketplace-driven decision. Upstate we still have a lot of not-for-profit plans,” Moran said. “In New York City where costs are higher and you’ve got a number of large national plans … you’ve got to be able to access capital.”
She named Affinity Health Plan, Fidelis Care and MetroPlus as some of the nonprofit groups still offering health insurance in New York City.
Some observers worry that approval of the conversion is a foregone conclusion. The state is set to earn billions of dollars from the public offering of EmblemHealth, a strong incentive to approve the plan, they say.
“The state has an incredible conflict of interest,” said Charles Bell, program director at Consumers Union. “How can you be an impartial regulator when you are the primary beneficiary of the deal?”
As part of the conversion plan, 90 percent of EmblemHealth’s initial value would be transferred to the state’s public asset fund for programs whose funding model is based on the state Health Care Reform Act—such as Family Health Plus and Healthy NY—while the remaining 10 percent would go to the state health foundation, which provides money for nonprofit health services. (For details, see To Your Health: Group Gets Going To Spread Millions Upstate and Down, City Limits Weekly #587, May 14, 2007.) This model was first used as part of the 2002 conversion of Empire Blue Cross and Blue Shield.
Gov. Spitzer’s recently released budget already projects billions of dollars in revenue over the next five years from the proposed conversion of EmblemHealth. The state has not specified how the money will be spent, other than allocating up to $50 million of the proceeds per year to fund stem cell research, but Bell and others anticipate the state will use it to plug gaps in the health care budget. The budget office says that these are only projected revenues, and they will adjust the state’s financial plans if the proposal is not passed.
The state insurance department says that it will judge the EmblemHealth proposal only on the formal conversion plan submitted by the company, as well as public comments shared at last week’s hearing and the advice of an independent consultant hired by the state. That consultant, insurance department spokesman Ron Klug said later, is actually four companies: Ernst and Young, Milliman Inc., Merrill Lynch and Sidley Austin LLP.
State Insurance Superintendent Eric R. Dinallo said at the hearing that the conversion plan must meet three criteria laid out by the state before being approved: it must not adversely affect members, it must protect the interests of the people of New York, and it must effectively wind down the business of the nonprofit organizations. Although some observers anticipate a decision within the next few months, the insurance department says that state law does not require a specific timeline, and would not commit to one.
Mark Scherzer, legislative counsel at New Yorkers for Accessible Health Coverage, urged the superintendent to remember what happened the last time the state approved a health care company conversion. After its for-profit status was approved in 2002, Empire Blue Cross and Blue Shield was quickly purchased by a large national insurer: WellPoint Health Networks, a national for-profit company with 34 million members nationwide. EmblemHealth has repeatedly said that it is committed to remaining a New York company, but Scherzer said this history should give the state pause.
However, he is not optimistic that this will be the case. “The state has already stacked the deck in favor of conversion,” he said.