Merger Of NYC Health Insurance Giants Clears Major Hurdle

Health care giants Group Health Inc. (“GHI”) and HIP Foundation Inc. (“HIP”) have cleared the latest legal obstacle to their merger.

On May 12, 2010, U.S. Judge Richard J. Sullivan of the Southern District of New York dismissed the City of New York’s antitrust suit attempting to unravel the merger of GHI and HIP.  Judge Sullivan’s decision added a decisive, albeit not final, nail to the coffin of the City’s efforts to derail the health care companies’ merger since the merger was originally announced almost five years ago.

On September 25, 2005, GHI and HIP first disclosed their intention to merge, creating in their own words the “Largest Health Insurer in New York State.”  About 1.2 million current and former New York City government and city-related agency employees are covered under the City’s health plan.

Federal and state antitrust authorities expressed concern over GHI and HIP’s merger before the City filed suit in November 2006.  Both the U.S. Department of Justice and New York’s Attorney General reviewed the merger.  Yet neither determined that the merged company, now operating as EmblemHealth, would violate U.S. or New York antitrust statutes.

The City’s action to undo the GHI/HIP died in summary judgment because Judge Sullivan rejected the City’s alleged market definition.

The City contended that 93 per cent of all current and former municipal employees select the lower cost health insurance plans offered by HIP or GHI.  Prior to their merger, GHI and HIP were the only two companies offering insurance plans without payroll deductions – a market the City termed “the low-cost municipal health benefits market.”  The merger of GHI and HIP, the only two low-cost municipal health insurance providers in New York, argued the City, would create a monopoly that could artificially increase the cost of health services generally.  In particular, the City claimed the merger would result in millions of dollars annually in increased health insurance premiums for the City.

Judge Sullivan rejected the City’s relevant market definition since the market at issue – the various insurance plans municipal workers may choose from – is determined by the City.  Tossing the City’s suit, Judge Sullivan wrote, “Because the city has defined the relevant market solely with regard to its own preferences as a purchaser of health insurance, its market definition is inadequate as a matter of law.”

According to the Law Department, the City it is strongly considering an appeal.

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