Healthcare policy and antitrust experts doubt the proposed union of Massachusetts-based health insurers Harvard Pilgrim Health Care and Tufts Health Plan would benefit patients in any way, despite the insurers' promises of lower costs and better quality of care.
"It's movement without progress. It's good for Tufts and Harvard Pilgrim, but there's no reason to think that the merger is good for people who get care or pay for it in Massachusetts and other New England states," said Alan Sager, a professor of health policy and management at Boston University.
Still, experts were hardly surprised that two of the largest insurers in the state behind Blue Cross and Blue Shield of Massachusetts have struck a deal to merge, given the local and national healthcare arms race underway. Harvard Pilgrim and Tufts likely hope their combined heft would give them leverage over ever-growing health systems in the state. Harvard in 2018 tabled merger talks with Partners HealthCare, the state's dominant health system.
The Harvard Pilgrim-Tufts deal, first announced Wednesday, follows a recent large-scale provider merger in the state between Beth Israel Deaconess Medical Center and Lahey Health, which closed in May. Partners, the owner of Massachusetts General Hospital and Brigham and Women's Hospital, had pursued an acquisition of Care New England until it dropped its bid in June.
"They may hope by merging they can gain leverage over hospitals, doctors, and drug companies," Sager said.
Tufts and Harvard Pilgrim are likely hoping to compete with the dominant local Blues affiliate, but they could also have their eyes on competing with national plans in the employer and Medicare Advantage segment, said Peter Manoogian, a Boston-based partner at ZS, a professional services firm focused on healthcare.
"Tufts is very well-known player in Medicare Advantage," Manoogian said. "That space is getting more crowded. Combining will create more scale and investment for a Tufts-Harvard Pilgrim combined entity to combat the Humanas and Aetnas, but also new entrants like Oscar."
Manoogian said he could also see the combination as a stepping stone to a vertical deal down the road. He pointed to Health Care Service Corp. and Florida Blue as other regional health plans that have vertically integrated by opening primary-care clinics. Nationally, UnitedHealth Group and Humana are two examples of insurers that have pushed into the realm of care delivery.
Harvard Pilgrim has been losing plan members, which could also provide some motivation to merge. It reported membership of almost 1.2 million at the end of 2018, down about 2.8% from 2017 and 6.8% from 2016. Tufts, meanwhile, reported membership of almost 1.2 million in the end of 2018, up slightly from 1.1 million the year before. Harvard Pilgrim reported net income of $80.1 million on revenue of $3.2 billion in 2018. Tufts Health Plan reported net income of $130.4 million on revenue of $5.35 billion last year, according to Modern Healthcare's database.
Experts are skeptical that a Harvard Pilgrim and Tufts merger would do much to fix healthcare problems and could even lead to higher costs for patients.
Hospitals or physician groups gain leverage over payers when they merge, especially when they are a "must-have" provider that an insurer can't kick out of its network without losing business, Sager explained. But the inverse isn't true: "Payer mergers don't lend comparable price leverage over caregivers," Sager said.
Moreover, Sager said the merger is bound to come with "enormous" integration costs.
Leemore Dafny, an economist with Harvard Business School, also doubted the benefits. She pointed to her often cited 2012 study of the impact of the 1999 merger of Aetna and Prudential, which found that the combined company was able to use its market power to increase premiums. Further, it found that rival health insurers not involved in the merger also raised their premiums.
"The data that is out there is not encouraging with respect to consumers benefiting from insurance mergers," she said.
Tufts Health Plan and Harvard Pilgrim have a history. The two tried to combine in 2011 but called the deal off after little more than a month of talks because leadership reportedly said the businesses weren't compatible.
A Harvard Pilgrim spokesman said Thursday, however, that "2011 was a different time."
"Both organizations, the marketplace and healthcare environment have changed," he added. "We are now focusing on addressing the fragmentation and complexities that exist in the healthcare industry today."
Harvard Pilgrim and Tufts will likely have to gain the approval of federal and state regulators before they can merge. A spokeswoman for Massachusetts Attorney General Maura Healey said the office has been in touch with both insurers and will review the proposed deal when there's more information. The insurers have not disclosed the financial terms of the deal and are not yet granting interviews with company executives, representatives for the companies said.