Suggested Talking Points for New York Insurance Department Hearings on the Proposed Conversion of HIP Of Greater New York and GHI to a For-Profit Company
by Chuck Bell, Programs Director Consumers Union
Preface
The transformation of a nonprofit health insurer into a for-profit, stockholder corporation is not just a technical corporate change. It is a community decision about how we want to arrange and pay for health care in a democratic society. New Yorkers have contributed over many years to the value of HIP and GHI by buying health insurance from these companies, directing employer, union and municipal labor contracts to them, and granting them exemption from various state and federal taxes.
Any change in HIP and GHI's organizational status deserves very careful attention and public oversight, with ample opportunities for citizen participation.
Below are some suggested talking points. Choose points that resonate with you and that you would feel comfortable making. You do not have to address all points. Feel free to put these ideas in your own words, and to relate them to your interest in affordable, accessible health care for the population(s) your organization serves.
Suggested Talking Points for Testimony
-- Briefly state your name, title, organization (if any), and what your organization does and who you represent.
-- Briefly identify any personal or organizational connection to: HIP of Greater New York and/or GHI, Vytra Health Plan and/or ConnectiCare (now owned by HIP). If you are insured by HIP and GHI, make sure to say so.
-- Briefly explain why the issue of affordable, accessible health coverage is important to you and the people your organization serves.
Review Process
-- The timeline for reviewing HIP-GHI's proposal is far too short. The review of Empire Blue Cross' conversion proposal took over five years, yet HIP-GHI's proposal was first publicly disclosed on December 13, 2007.
-- The impacts of an insurance conversion could be felt for many years to come. It is important to take sufficient time in reviewing it upfront to ensure that the public is not adversely affected.
-- At this very early stage, HIP and GHI have not provided enough information in their application to establish that the proposal will not have serious adverse impacts on policyholders, and on the affordability and accessibility of health care in New York state.
-- Health insurance conversions have great potential to affect the affordability, accessibility and availability of health care in New York state. We call on the Department of Insurance to commission a detailed independent analysis of potential impacts on the affordability of premiums, the accessibility of health coverage, marketplace concentration and competition, and the impact on provider networks in all market segments. The results of the Department's investigation should be publicly disclosed for public comment, prior to any final decision on HIP-GHI's application.
-- In four other states – Kansas, Maryland, Washington and North Carolina -- applications for nonprofit insurance conversions have been rejected or withdrawn since 2001. In each state, the conversion proposal received detailed scrutiny from insurance regulators, including the hiring of independent outside experts to determine the impact on the insurance market and access to health care.
-- The burden of proof for establishing that the conversion is in the public interest is on HIP-GHI. If that burden of proof has not been met, regulators must reject HIP-GHI's application.
Insurance Access and Affordability Issues
-- GHI and HIP were established in 1937 and 1944, respectively, to serve the needs of the entire community for affordable health coverage by covering working families and their children. They later expanded their operations to participate publicly-funded insurance programs like Medicare and Medicaid.
-- In November 2006, Group Health Incorporated (GHI) and Health Insurance Plan of Greater New York (HIP) became affiliated companies under the parent organization EmblemHealth Inc. Since then, GHI and HIP have submitted a plan to combine the two not-for-profit health benefits providers into a single for-profit publicly traded company.
-- As they exist today, GHI and HIP are obliged by their nonprofit mission to serve their entire community, by expanding affordable health coverage to all persons who are potentially eligible in their service area. By contrast, a for-profit company has a fiduciary duty to earn profits for its investors, and does not have the same legal obligations as a nonprofit insurer. This is a fundamental difference.
.. -->[if !supportLists]-->· .. -->[endif]-->If the proposed conversion is approved, New York will lose 2 community-oriented nonprofit insurers with nonprofit social missions of extending coverage to those left out of the commercial market. In its place will be one big investor-oriented for-profit insurer with a mission of making as much money as possible.
-- Based on HIP-GHI's proposal, it isn't clear why their boards have concluded that conversion to for-profit operation is the best or only choice to secure the future of the organization. In particular, HIP, which is the larger of the two health plans, has not shown a financial reason as to why it needs to convert to for-profit operation. HIP has over $900 million in reserves, and it recently spent $350 million to acquire Connecticare, a for-profit HMO in 2005. HIP has had many years of consecutive positive financial results and is not financially distressed. GHI is weaker financially, but it isn't clear that conversion is its best or only option, and that it could not continue as a viable nonprofit insurer through mergers or partnerships with other nonprofit partners.
-- Other nonprofit insurers are able to continue in this marketplace and finance their operations through various methods. Rather than uncritically accepting HIP-GHI's assertions that it has no other option but to convert, the Insurance Department should thoroughly investigate these issues, and conduct an independent assessment of whether these claims are actually justified. The Insurance Department could also work with HIP-GHI and independent consultants to identify alternative measures that could facilitate or encourage continued nonprofit operation.
-- Independent financial analyses of insurance conversion proposals in Washington and Maryland established that plans had overstated their needs for external capital, and that conversion would not necessarily benefit consumers.
-- The Insurance Department must not accept HIP-GHI's assertions about its need for capital uncritically, without commissioning an independent study of these issues. The Insurance Department should hire independent experts to fully analyze and evaluate the potential impacts of any proposed conversion, to examine potential changes in premium rates and benefits, market structure and competition, and the potential loss of any other community benefits currently provided by HIP and GHI.
-- The analysis of conversion health impacts should include the potential impacts on all populations and customer segments served by or intended to be served by HIP-GHI, including vulnerable populations (such as _______, the people our organization serves). (Add more specifics here about how you think your members or clients may be affected by the proposed conversion.)
-- Consumers and workers could be hurt by higher premiums and reduced benefits if HIP-GHI is allowed to convert to for-profit purposes. As a for-profit company, HIP-GHI would be permitted to spend less of each premium dollar on health expenses, and more on marketing, administration and executive salaries and benefits.
-- The conversion could potentially drive up the cost of health insurance for HIP and GHI's 3.5 million policyholders, and result in reduced access to health care for many consumers. If HIP-GHI's prices go higher, than the prices of its competitors may go higher, too. In addition, HIP-GHI may be acquired by large out-of-state insurance companies, resulting in greater market concentration.
-- New York City and others have raised serious concerns about the impact that the GHI merger and conversion will have on the price of health care for New York City's workforce. (More info, below) These concerns should be fully investigated by independent consultants to the Department of Insurance and department staff, with an additional public meeting to brief consumers, employers and retirees, explaining the outcome of the independent analysis, prior to approval of HIP-GHI's plan.
-- The HIP-GHI proposal seems to promise no immediate impacts on premiums and accessibility, but as organizations that represent consumers, we are concerned about what will happen over the long-term. The lack of specificity in HIP-GHI's proposal does not inspire confidence that consumer interests will not be harmed later on.
-- In particular, HIP-GHI's section on "Continuity of Coverage and Protection of Policyholders and Members" relies on general assertions about the organization's good intentions, but provides little specific information to assure customers that premiums and benefits will not experience significant changes over the next 3-5 years and beyond. It merely states that "the Conversion will not by itself result in any impact on the premiums due for the remaining term of any policy or contract issued by any of the Companies." (emphasis added)"
-- Long-term customers, and others who seek affordable coverage, are entitled to know how HIP-GHI's broad assertions will actually be backed up in practice, through public commitments and promises, and/or by enforceable agreements with regulators, and for what period such guarantees or promises will remain in effect.
-- HIP-GHI's commitment to participate in public health insurance programs like Medicare, Medicaid and Family Health Plus should be clarified and strengthened over a much longer period of time. I am particularly concerned about _________________. which affects the population my organization serves.
-- As noted in the conversion plan, HIP is heavily involved in the state Medicaid program. If HIP goes for-profit, the rate of profitability will be a much bigger financial consideration for all lines of business, including Medicaid. Many other commercial carriers have already deserted the Medicaid field. Whereas HIP may be able to sustain itself in the Medicaid program if it remains a nonprofit, investors in a private Emblem-Health may demand much higher rates of return on capital This could lead to Medicaid beneficiaries losing a reliable source of coverage, and having fewer choices of insurers and provider networks.
-- If despite these concerns, the Insurance Department approves HIP-GHI's application, continued access to affordable, accessible health insurance should be maintained for all policyholder groups. No consumer should lose coverage as a result of the conversion. Any adverse impacts should be fully addressed and mitigated through changes in the conversion proposal and/or appropriate regulatory action. We also need to know the period in which such guarantees will be in force.
-- Rate hearings for premium increases should be reinstated, to ensure that consumers are not harmed by HIP-GHI's conversion and recent mergers in the insurance marketplace.
-- How will the decision to allow HIP and GHI to go for-profit interact with the state's plans to expand coverage for the uninsured? In addition to increasing their administrative costs, HIP-GHI's plan says they want to strengthen their for-profit subsidiary PerfectHealth to sell Health Savings Accounts and high deductible plans. Is this what we want to encourage? Until the state knows what it intends to do about universal coverage, how can it decide what is in the public interest, and the effect on coverage of this conversion?
Asset Disposition Issues
-- Billions of dollars of charitable health dollars are at stake in this deal. HIP-GHI's ulimate value may exceed $5 billion or more. Any proposed plan for redeploying HIP and GHI's assets should be carefully reviewed to determine how it would affect the affordability and accessibility of health care in New York state.
-- As things stand today, 100% of HIP-GHI's assets are already allocated to a charitable mission of providing affordable health coverage. Policyholder rely on HIP and GHI's promises to keep their resources devoted to nonprofit purposes. If a single dollar is diverted to private pockets, the New York Attorney General and the Courts can become involved to ensure that HIP and GHI's assets remain devoted to a charitable mission.
-- If, despite the grave concerns raised regarding insurance affordability, HIP-GHI's conversion proposal is approved, 100% of the charitable assets of HIP-GHI should remain in nonprofit sector to provide a satisfactory and viable replacement resource to address the post-conversion needs of subscribers and the community. If the money is taken by government, it should be used to expand access to affordable and accessible health coverage, and not used to replace existing sources of state revenue.
-- The path that the state of New York followed for the Empire Blue Cross conversion did not create a workable policy framework for how the state should deal with health care conversions. In the Empire case, the state decided that a for-profit conversion could be permitted if the State gets the lion's share of the money. In the Empire case, the state of New York received 95% of the Empire proceeds, which it spent down in just 3-4 years. By contrast, the state of California retained over $6 billion in Blue Cross conversion assets in two charitable foundations, to carry on a continuing mission of expanding access to affordable health care.
-- The HIP-GHI conversion follows this same flawed model, with the state of New York taking 90% of the money for purposes that are much different than HIP-GHI's current mission.
-- The HIP-GHI conversion would divert billions in nonprofit health care dollars to government. The state is in effect raiding nonprofit health dollars to replace existing state commitments to fund public health care programs. This plan does not create "net new dollars" for the health care system; it merely redeploys nonprofit dollars in the service of state health care programs.
-- Under the state's plan, approximately 80% HIP-GHI's assets would be rapidly spent down over 3-4 years to fill a short-term state budget needs, with approximately 10% of funds allocated to the foundation and 10% to stem cell research. Very little would be left behind to carry on HIP's historic mission of expanding access to affordable, comprehensive health insurance. In addition, consumers would not be provided with an adequate replacement resource to mitigate the negative impacts of conversion.
-- When future state budgets are put together, HIP's resources may be diverted away to other government programs, including non-health care purposes, special interest spending, and/or deficit reduction. Once money is received by government, it is fungible. HIP's assets will in effect replace billions in current state spending on health care, so health care funds can be moved to other areas of the budget and/or to reward special interest lobbying groups.
-- When for-profit health plan conversion have taken place in other states, including California, the people of those states have almost universally been compensated by having health care foundations promoting the access to coverage and care, with billions of dollars in assets. New Yorkers are being cheated by this proposal.
-- The proposed Gottfried and Seward conversion legislation (A 8545 and S 2464) would clarify existing law by requiring full public disclosure and public hearings prior to any proposed conversion of a nonprofit health insurer to a for-profit company. A 4024 and S 2464 would also ensure that 100% of a nonprofit health plan's assets would be protected in the nonprofit sector, as currently required by the Not-For-Profit Corporation law. These bills establish a clear, transparent process to ensure that conversions will only be approved if the plan's assets are fully protected, and the transaction is found to be in the public interest.
Note: In his hearing notice, Insurance Commissioner Eric Dinallo indicates that the hearings will not entertain comments about the enabling legislation or the disposition of HIP-GHI's assets. However, in the past, our experience in the past is that groups were allowed to comment on this, as long as they didn't harp on it too much, and it was not their only point.
Stock Options
-- The ability of HIP-GHI officers and managers to obtain stock options in six months after the conversion is probably a very strong incentive for pursuing conversion.
-- The likelihood of dramatically increased compensation for HIP-GHI executives raises serious questions about whether the conversion will benefit the public, rather than private parties. Policyholder dollars will be used to line private pockets, rather than to improve health care.
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