Mayor's Deputy Fears HIP-GHI Merger Impact;
Says City, Worker Costs May Rise Substantially

By REUVEN BLAU

Deputy Mayor Edward Skyler Jan. 29 cautioned that allowing the Health Insurance Plan of Greater New York and Group Health Incorporated to convert to a for-profit entity without imposing strict conditions could "inflict irrevocable harm" on the city, which would be forced to cover the roughly $400 million in additional health-care costs every year.

ED SKYLER: City deserves most of proceeds.

Mr. Skyler urged the State Insurance Department to block the conversion or require that GHI and HIP cap any rate increases for a "significant" period of time.

'Spiraling' Costs

"The city can ill afford to see its health-care costs spiral out of control, and undermine our ability to balance the budget without slashing funding for crucial core services such as public safety and education," Mr. Skyler testified before the New York State Insurance Department.

The Bloomberg administration has sued to block the merger, contending that it would eliminate competition and drive up health costs.

But union officials say that GHI and HIP have such large shares of municipal-employee subscribers precisely because they offer cheaper, more-comprehensive services than their competitors.

MLC 'Watching Closely'

United Federation of Teachers President Randi Weingarten, who as chair of the Municipal Labor Committee leads the unions in bargaining on health benefits, said that she and her colleagues were watching the situation carefully.

"We have not taken a position on whether the merged HIP and GHI should convert from non-profit to for-profit status," she added in a statement.

She previously said that the chief executive of both health-care providers had assured the unions there would be no adverse consequences for employee subscribers as a result of the conversion.

In November 2006, the two health-care companies merged, creating the state's largest single health plan, called EmblemHealth. Between them, GHI and HIP provide health coverage to 518,000 employees and retirees - about 93 percent of the total eligible municipal workforce.

Mr. Skyler acknowledged that HIP and GHI remain "far and away" the most affordable health-care plans available for city employees.

'City's Cost Will Rise'

"But make no mistake, as a combined company, HIP and GHI will be compelled to impose much larger rate increases on all contract-holders, and the city will be forced to pay the majority of those increases," he testified.

According to Mr. Skyler, after the conversion is officially permitted, the new provider will be required to pay large corporate income taxes and state and MTA taxes on insurance premiums, which would immediately increase operating costs by more than 2 percent of current premiums, or $67 million per year.

Union officials contend the consolidation could actually benefit public employees, saying that it figured to reduce the two companies' administrative costs.

They also say that the merger will improve options for city workers, because what it will offer in the volume of subscribers could make doctors and hospitals more willing to take their members even if the reimbursement rates are significantly below what they could get for patients with private insurance.

Mr. Skyler, however, predicted that to maximize profits, HIP and GHI's future shareholders would demand that it charge at least as much as other private insurers. The for-profit health-care provider closest in price to HIP currently charges 24 percent more in premiums than HIP charges city employees.

$400-Million Tab

The city estimates that HIP/GHI would have to pay an additional $32.9 million for every 1-percent increase. "So if rates increased by even half this amount, it translates to approximately $400 million in additional health-care costs every year," Mr. Skyler testified.

He added, "Given these realities, any claim that HIP and GHI's rates and historic pattern of rate increases would remain the same after a conversion simply defies common sense."

Mr. Skyler also noted that the city's health-care costs have already been skyrocketing over the past several years. Between 2002 and 2008, those expenses increased by approximately 67 percent, from $2.4 billion to $4 billion, an average of roughly 9 percent a year, the Deputy Mayor said.

EmblemHealth is in the process of converting to a for-profit entity, which is expected to generate hundreds of millions from an initial public offering of its stock. The state had earmarked a large portion of those projected funds to pay for its expanded stem cell research program, but it is unclear if that plan is still in place.

Mr. Skyler warned that the presumed public offering would not result in any direct benefit to city employees, because the proceeds would be directly under the state's control. Governor Spitzer's proposed budget, Mr. Skyler added, lists revenues from the projected conversion of $284 million in fiscal year 2009, and more than $1.5 billion in fiscal years 2010, 2011, and 2012.

Unions Want a Share

The Deputy Mayor argued that the plan neglected the city's interests, pointing out that both GHI and HIP have "deep roots in New York City." GHI was formed in the city in the 1930s, and led the way to providing health-care to New Yorkers, he said.

HIP was created by Mayor LaGuardia in 1947 for the sole purpose of providing affordable health-care to city residents and workers. "The value of these companies derives almost entirely from contributions made by the city and its employees over more than six decades," Mr. Skyler testified.

He noted that last spring he traveled to Albany with Ms. Weingarten to make a joint case to the Governor and the Legislature that if HIP and GHI were permitted to convert, the city should get a fair share of the proceeds in order to continue providing affordable health-care to its workers.

Ms. Weingarten has also pointed to the large role city workers have played in creating the large health-care providers, arguing that the municipal unions should receive a share of the generated money.

She has questioned why the city has taken legal action seeking to block the merger when the two bodies that would normally initiate such a proceeding - the Department of Justice and the State Attorney General's Office - had declined to do so.

The MLC chair and other union leaders have speculated that the move is the city's first step in attempting to gain some leverage with either the carriers or the unions.