The proposed merger between Massachusetts-based health insurers Harvard Pilgrim Health Care and Tufts Health Plan is likely to close early next year after Tufts agreed to divest its commercial health insurance business in New Hampshire.
The U.S. Justice Department's antitrust division and New Hampshire's attorney general filed a lawsuit Monday to block the proposed merger unless the parties agreed to resolve potential competitive harm by selling Tufts Health Freedom Plan to UnitedHealth Group. Tufts said it has agreed to do so.
"The sale to UnitedHealthcare will ensure that Tufts Health Freedom Plan remains an independent option for New Hampshire residents," according to a statement from Tufts.
While the DOJ and regulators in Massachusetts concluded the deal wouldn't harm competition in that state, New Hampshire was a different story. The DOJ complaint said Harvard Pilgrim and Tufts Freedom are two of the three top commercial group health insurers that offer plans to employers with fewer than 100 workers in New Hampshire.
The lawsuit said that since Tufts Freedom's inception in 2016, competition between it and Harvard Pilgrim has led to lowered premiums, richer benefits and better service for private employers in New Hampshire.
Healthcare policy and antitrust experts said they doubted the proposed union would benefit patients when it was announced in August 2019, despite the insurers' promises of lower costs and improved quality.
Terms of the proposed settlement require the health plans to divest Tufts Freedom to UnitedHealth Group or another purchaser and let United hire key employees. Harvard Pilgrim and Tufts must also provide transition services and try to ensure Tufts Freedom's contracts with healthcare providers aren't disrupted during the transition to United.
Wellesley, Mass.-based Harvard Pilgrim reported $3 billion in revenue in 2019. In the quarter ended Sept. 30, 2020, it drew $45.5 million in operating income on $807.2 million in revenue, a 5.6% operating margin. Its membership stood at 1.1 million. The company said Monday that the DOJ's announcement represented another important milestone as the companies move toward finalizing their combination.
Watertown, Mass.-based Tufts Health Plan generated more than $5.5 billion in revenue last year, with roughly one-third coming from its commercial products. The company reported $7.6 million in operating income on nearly $1.6 billion in revenue in the quarter ended Sept. 30, 2020. Its membership was nearly 1.2 million.
A spokesperson for Tufts Health Plan said the Massachusetts Department of Insurance still needs to sign off on the proposed plan, and its decision is expected soon. The DOJ's court filing on Monday follows a recent virtual public hearing with the Massachusetts insurance regulator. The company said it now expects the deal to close in the first quarter of 2021, with the new organization serving 2.2 million members in Connecticut, Maine, Massachusetts, New Hampshire and Rhode Island.
For its part, UnitedHealthcare said in a statement that its agreement with Tufts Health Freedom Plan will bring together their expertise, product portfolios and relationships to better serve health coverage needs in New Hampshire.