Priority Health and Total Health Care announced Wednesday a plan to merge in which Detroit-based Total Health will become a wholly owned subsidiary of Grand Rapids-based Priority, officials said.
The proposed deal must gain state approval to become final, potentially later this year, said Marti Lolli, Priority Health's chief marketing officer.
Priority Health is the second largest health insurer in Michigan after Blue Cross Blue Shield of Michigan with more than $4 billion in 2018 revenue and 830,000 covered lives.
As the state's oldest health plan founded in 1973, Total Health is a membership-owned nonprofit health insurer with 96,000 members — 53,000 Medicaid and 43,000 individual market commercial in two separate companies, Total Health Care Inc. and Total Health Care USA Inc., with combined revenue of $365 million, Total Health CEO Randy Narowitz said.
"We thought it almost was a no-brainer for us, the merger of two organizations that have the longest standing Medicaid health plans in the two populated regions (Detroit and Grand Rapids)," Lolli said. "Total has strong expertise and a talented team."
Narowitz said Total Health started talking with Priority earlier this year about joining forces based on common interests.
"Priority wanted a bigger role in Medicaid in Southeast Michigan and we started comparing notes and started down this path," Narowitz said. "This business is filled with consolidation. Plans are growing and merging. The competition is very fierce. Total with Priority gives us strength and size."
In June, Health Alliance Plan of Michigan announced plans to acquire for-profit Trusted Health Plan after absorbing Midwest Health Plan in 2015. Last year, Meridian Health was acquired by Tampa-based WellCare Health Plans Inc., which in March struck a deal to sell to St. Louis-based Centene Corp.
Lolli said Priority also wanted to expand its Medicaid managed care coverage to Southeast Michigan, where it doesn't have a Medicaid plan but is growing in Medicare and individual commercial business lines.
"Our service was limited by the Medicaid rebid (in 2015) and we are preparing for the future," said Lolli, who said the next state rebid for Medicaid plans is October 2021. The state Medicaid office could extend the rebid an additional three years.
While described as a merger, Priority Health has agreed to contribute $25 million to a nonprofit foundation, Total Health Care Foundation, overseen 50-50 with Total Health. The foundation would fund a variety of nonprofit health initiatives and projects in metro Detroit along with improving social determinants of health that includes transportation, food and housing, Lolli said.
The foundation came about during merger negotiations with Total Health. "It was their ask and we agreed. It is a great strategy and good for the community," Lolli said.
"I have a great deal of respect for the leadership team at Total Health Care and the business that they have built," Joan Budden, president and CEO of Priority Health, said in a statement. "Throughout my long career in the region and as a Detroit native, I've seen firsthand their passion for serving their members and their commitment to the Detroit community. We are excited to welcome Total Health Care's talented leaders and employees into the Priority Health family and look forward to partnering with them to ensure that more consumers have access to high-quality, affordable health plans."
Priority also agreed to keep Total's management team and employees in place for at least the next 12 months. Total's headquarters will remain at the historic Fisher Building in downtown Detroit.
"We like it here, Priority likes it and we have potential for (the offices) to grow," Narowitz said.
Over the past decade, Total Health has been a profitable enterprise. Its Medicaid business reported total net income of $6.7 million in 2017, after suffering a loss of $15.4 million in 2017, according to the Michigan Department of Insurance and Financial Services. Revenue also dropped to $183.4 million in 2018 from $261 million in 2017.
But Narowitz said that when Total's commercial business is factored in the company overall made money in 2017 and 2018. Total Health USA, its commercial business line, earned net income of $10.6 million in 2018 and $15.5 million in 2017, DIFS said. Revenue grew to $182 million in 2018 from $148 million the prior year.
In Southeast Michigan, Priority Health had a total of 158,000 members in its Medicare, individual market and employer groups, Lolli said. Statewide, Priority has 830,000 members in its Medicare, Medicaid, commercial and employer group insurance products.
"We have consistently grown in Southeast Michigan, 63 percent in the last five years," she said. "We continue to see Medicare members choosing us each month."
Lolli said the two health insurers are still discussing the timetable of integrating the two companies. "We will integrate at a pace that makes sense and drives value to the market," she said. "Our focus is do no harm to employees, members and provider relationships."
Narowitz said members will continue to use their Total Health membership card.
Total Health has members in Wayne, Oakland, Macomb, Genesee and portions of Monroe counties. It has contracts with more than 2,560 health care centers, 2,050 primary care physicians and 4,500 specialists.
In 2018, Priority Health provided more than $138 million in community benefit across the state, including partnerships with more than 30 Detroit-area organizations in 2018 to support community, charitable and business programming.
"Priority Health, Total Health Care to merge in Southeast Michigan" originally appeared in Crain's Detroit Business.