In a surprise decision that relieved some and disappointed others, the nation's two most influential health insurance trade groups called off merger talks last week after a number of smaller member plans threatened to defect and create their own group.
The Health Insurance Association of America and the American Association of Health Plans said they will continue as separate organizations under their current leaders--Charles "Chip" Kahn and Karen Ignagni, respectively.
The dissolution of the planned merger ends almost a year of closed-door wrangling to form what could have been one of the most potent lobbying groups at a time when health issues, particularly prescription drugs and patients' rights, are high on most political agendas.
HIAA Chairman John Sturgeon and Chairman-elect William McCallum told members in a Dec. 13 letter, "Although we had hoped to be able to report positively on the extensive negotiations with (the AAHP) over the past several months, which were designed to create a stronger combined organization, regrettably, we could not find sufficient common ground to justify moving forward."
The end to merger talks "is unfortunate" the AAHP said Thursday in a memo to its managed-care companies.
Late last month, the two Washington-based organizations signed a "memorandum of intent to merge" and were expected to formally announce their combination as early as Dec. 4. But sources close to the talks said the merger was delayed and ultimately derailed by dissension among several HIAA members, which questioned how well the combined organization would represent their interests.
No formal announcement of the proposed merger was ever made.
A large number of the HIAA's 300 members are traditional indemnity plans. Sources said these insurers, including sellers of liability workers' compensation, disability, long-term-care and Medicare supplemental policies, were reluctant to team up with the AAHP, a managed-care organization with 1,000-plus member HMOs and PPOs, which hold vastly different political priorities.
The AAHP, for example, endorsed House Republican's private-sector Medicare drug benefit bill in 2000. The association's support was garnered in part by the bill's inclusion of additionl funding for the troubled Medicare+Choice program.
The HIAA, on the other hand, has been a vocal opponent of the private drug insurance proposals. Kahn angered top Republicans in Washington when he criticized their plan to extend drug coverage to seniors by helping them purchase private insurance coverage.
"The two organizations, while they may look a lot alike at first glance, have some major differences," one industry expert said. "There were simply too many parties with too many different interests."
Smaller HIAA members reportedly expressed concern that their voice would get lost in a large organization that represented the entire industry. Small health insurers, which often target local markets, tend to focus on state-level legislation whereas larger national and regional insurers typically are more concerned with federal regulations.
Because the HIAA structure gives one vote per company, small members have the same clout as larger ones. That dynamic would have shifted dramatically if the AAHP's mostly larger members entered the voting picture.
In their letter, Sturgeon and McCallum stated confidence in Kahn and his staff, saying, "They have done an outstanding job for our industry, and we have every confidence their efforts will continue to make HIAA the important voice to listen to on both federal and state issues."
Although HIAA initiated the merger talks, the AAHP's Ignagni would have led the new organization. Her leadership style generally is considered less adversarial than Kahn's. Washington insiders believed Kahn might be considered for a top healthcare post in the new Bush administration, possibly heading HCFA.
It was also expected that the combined group's staff would consist mostly of the team Ignagni assembled at the AAHP.
"(These) personnel issues were symbolic to some members of how the organization's culture and priorities were going to change," said a source close to the talks.
A number of larger companies, however, were disappointed by the deal's collapse.
Cigna Corp. and WellPoint Health Networks, in particular, had reportedly pushed hard for the merger, believing the combined organization would wield more clout on key political issues, such as a patients' bill of rights. Cigna left the AAHP to join the HIAA in 1997. WellPoint is a member of both groups.
The combined HIAA-AAHP would have had a joint annual budget of nearly $45 million and employed about 200 people.
"We see it as a missed opportunity to forge a stronger organization that could speak to Congress with the clarity of one voice," the AAHP's Pisano said.
Others bemoaned the loss of savings that a merger could have provided.
A number of insurers pay overlapping association dues, including several Blues plans that also pay a fee for membership in the national Blue Cross and Blue Shield Association.
But the two organizations' differing financial pictures may ultimately have been another sticking point during merger talks, some pointed out.
While the AAHP had 1999 revenue of $25.1 million, it's shouldering a lot of debt, having spent heavily on advertising aimed at combating legislation that would give patients a right to sue their HMOs.
It also has lost several big dues-paying members, including Cigna and Aetna U.S. Healthcare, in recent years.
Meanwhile, the HIAA has run a tight ship and has strengthened its financial position with a thriving conference operation and a growing affiliate membership, which includes pharmaceutical giant Merck & Co., a prime advocate of the private-insurance approach in the House bill.
Although both trade groups agree that merger talks are no longer in their future, they said they will continue to work together on major health policy issues of common interest and concern.