2008-02-15 / Community

It's My Turn

The GHI-HIP Merger: Part II
By Edward Skyler Deputy Mayor For Operations City Of New York

Edward Skyler is the Deputy Mayor for Operations for New York City, working closely with Mayor Michael Bloomberg. The following is his testimony before the New York State Health Department concerning the proposed merger and privatization of GHI and HIP. Part One of this "It's My Turn" was published in last week's Wave.

"It is due to the anti-competitive merger [between GHI and HIP] that the City is currently suing [them] to undo any competitive restraint on rates that would have mitigated the upward pressure on premiums caused by [the two companies going private].

"Prior to the merger, GHI and HIP competed against each other to provide affordable healthcare to the City's employees.

"Due to that competition, GHI and HIP's rates historically have been significantly lower than its for-profit counterparts. However, if the conversion is permitted, the State will be granting a combined HIP and GHI the unrestrained ability and incentive to increase rates, which the City will have to pay.

"In response to the concerns I have described, you may hear that the negative impacts of a conversion would be mitigated by the presumed public offering of HIP and GHI stock. That is not the case. In fact, a public offering would not result in any direct benefit to the City or its employees, because the proceeds of such an offering would go directly and entirely into the State's control. In fact, the Governor's proposed budget, released last week, projects revenues from the proposed conversion of $284 million dollars in fiscal 2009, and more than $1.5 billion dollars in State revenues is projected in fiscal years 2010, 2011 and 2012.

"This windfall to the State would be the direct result of the decades-long investment that the City has made to provide quality healthcare for its employees and residents. The fact that the City would be completely unable to use the proceeds of a public offering to offset the cost increases that a conversion will make inevitable is grossly unjust. Rather than reaping the value of its investment and using it to ensure that City employees continue to get affordable healthcare, the conversion will take what is essentially a City asset and use it to pay the State's bills.

"If, in spite of all these factors, the Superintendent chooses to approve the conversion, he must do everything in his power to assure that it does not adversely affect the City and its employees, or negatively impact 'the delivery of health care benefits and services' to the people of New York City. To do that, the Superintendent must condition any approval of the conversion on a binding requirement that GHI and HIP cap any rate increases, and those caps must be strict and longer-lasting than those imposed on Empire Blue Cross/Blue Shield when the State permitted it to convert in 2002.

"The City proposes that the Superintendent limit any rate increases by HIP and GHI for a significant time period following the effective date of the conversion to no more than what the Superintendent first finds is consistent with increases in medical costs and utilization (for example, future rate increases could be tied to some standardized consumer-price index). In addition, the Superintendent should establish an Oversight Committee with authority to ensure that HIP and GHI comply with any order permitting conversion. Finally, the Department must support developing a means to ensure that a substantial portion of the proceeds of any public offering of HIP and GHI go to the City. Last spring, I traveled to Albany with UFT president and head of the Municipal Labor Committee, Randi Weingarten to make a joint case to the Governor and the Legislature that if HIP and GHI are permitted to convert, the City must get a fair share of the proceeds to ensure that we can continue to provide affordable healthcare.

"Before closing, I should point out that the proposed conversion now before you differs in three significant and important ways from the Empire Blue Cross/Blue Shield conversion approved by the Department in 2002. First, Empire was subsidized by New York State, and its contract-holders were located throughout the state, so that it was appropriate that the value realized from the IPO flow to the State rather than to any particular municipality. But the value of HIP and GHI was created almost exclusively by the City of New York and its employees and residents, and the cost increases that would inevitably follow the proposed conversion would be felt almost exclusively by the very people who should be the primary beneficiaries of a conversion, but who will see the entire value of their investment go to the State.

"Second, Empire had explored alternatives to conversion - including merger with or acquisition by another insurer - and none were available. HIP and GHI, on the other hand, have successfully merged, so their arguments for conversion are weak compared with those in favor of Empire's conversion. (After all, if their arguments in favor of the merger are to be believed, the merger itself will reduce their costs and make them more competitive with other New York insurers.) Third, Empire had lost at least half of its subscribers from 1986 to 2002, had experienced a period of major operating losses, and its continued existence was in question. GHI and HIP were doing well even before their merger and the merged entity is viable and indeed valuable to the City and the region.

"All the facts demonstrate that GHI and HIP cannot convert to a for-profit corporation without inflicting irrevocable harm on the City. As such, the Superintendent should approve the plan of conversion only subject to stringent conditions that will ensure that the City can continue to provide affordable healthcare to its employees and residents, and only if the City is guaranteed a fair share of the proceeds from any public offering of HIP and GHI stock.

"Thank you very much for the opportunity to testify this morning."

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