Business & Tech

Big insurers take a big hit in shakeup of public workers’ plans

The state has offered plans from Harvard Pilgrim Health Care and Tufts Health Plan for more than three decades. But beginning in July, neither of the well-known insurers will be available to public workers who buy commercial health plans.
David L. Ryan/Globe Staff/file
The state has offered plans from Harvard Pilgrim Health Care and Tufts Health Plan for more than three decades. But beginning in July, neither of the well-known insurers will be available to public workers who buy commercial health plans.

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Two of Massachusetts’ largest nonprofit health insurers are bracing for a significant drop in revenues that could force at least one of them to cut jobs, after a state agency eliminated them from coverage options for tens of thousands of public workers.

The state has offered plans from Harvard Pilgrim Health Care and Tufts Health Plan for more than three decades. But beginning in July, neither of the well-known insurers will be available to public workers who buy commercial health plans.

A spokeswoman at Tufts said the insurer is still evaluating how to manage the loss of state business — and the anticipated $25 million hit on revenue — but she said some job cuts are likely.

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Harvard Pilgrim and Tufts are each set to lose 90,000 members. That’s about 8 percent of Tufts’ total membership, and about 7 percent of Harvard Pilgrim’s total.

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Fallon Health, a smaller Worcester-based insurer, is slated to lose about 20,000 members.

The fallout results from a surprise move on Jan. 18 by the state’s Group Insurance Commission, which manages public health benefits, to stop offering commercial coverage from the three insurers. (Tufts will still offer Medicare plans to public-sector retirees.)

The commission whittled the options for public employees down to three lesser-known insurers.

Harvard Pilgrim said Tuesday that no staffing changes are currently planned, but the Wellesley company will “continue to evaluate the needs of the business and will staff accordingly.”

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“GIC has been a major account for Harvard Pilgrim Health Care for many years. . . . We would have liked to continue to serve GIC, and would be happy to do so again in the future,” spokeswoman Kimberly Winn said in an e-mail.

A Fallon spokesman declined to comment about potential job cuts but said the company is focused on minimizing the disruptions to members.

Collectively, the insurers employ thousands of people in Massachusetts.

It’s unclear how many jobs might be affected by the GIC’s decision.

Jon Kingsdale, a health care consultant and professor who previously held jobs at Tufts and in state government, said the loss of state business means that Tufts, Harvard Pilgrim, and Fallon will have to make tough decisions to cut costs quickly.

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“They’ll have to make adjustments to that employee workforce,” he said. “I imagine there will be layoffs.”

The state commission’s move has come under fire from public employee unions and some politicians, who say the changes were made with little public notice or debate. The commission is holding public hearings this week.

State senators said Tuesday that they will hold a public oversight hearing on Jan. 31 to discuss the “abrupt” changes.

Attorney General Maura Healey said her office has been getting calls from state employees who are “freaked out” by the changes and urged the commission to reconsider.

“This was a situation that was seriously mishandled,” Healey said in an appearance on WGBH radio.

Officials at the state commission defended their decision and the process that led to it. They said they evaluated several factors before choosing which health plans to keep and which to eliminate. They expect their changes to save about $20.8 million in the first year of the rollout, while allowing almost all public employees and retirees to keep their doctors.

The commission manages benefits for about 442,000 employees, retirees, and their families and is the largest purchaser of health insurance in the state.

“This procurement was done to maintain high-quality benefits and doctor choices while saving GIC members and the state money,” Ashley Maagero Lee, the commission’s chief of staff, said in a statement. “We anticipated health care cost increases of 5 percent or more for GIC members without these changes.”

The commission has yet to detail how much employees and retirees will pay for their health plans next year. Those figures are expected next month.

Thomas A. Croswell, the chief executive of Watertown-based Tufts Health Plan, said he was disappointed and surprised to learn that the state was dropping Tufts from its commercial health plan options.

“We’ve had a very long history of serving the GIC, all the way back to . . . 1983,” Croswell said. “When you work with a client for that long, you develop a true partnership.”

Croswell said the application process for state business included essays, interviews, and references, as part of a grading process.

“We missed the cut by a tenth of a point,” Croswell said.

Meanwhile, three other insurers are poised to gain thousands of new members — and new revenues — following the state commission’s move.

The three companies slated to benefit are Neighborhood Health Plan, a subsidiary of Boston-based Partners HealthCare; Health New England, which is owned by Springfield-based Baystate Health; and UniCare, a division of Anthem, a publicly traded insurance company headquartered in Indianapolis.

Public employees will be able to choose their own health plans, but state projections show UniCare is likely to see the highest gain in commercial members.

UniCare has an office in Andover that employs about 200 people. Its network includes all Massachusetts doctors, company officials said.

“UniCare is proud of our 30 years of service to the Commonwealth’s employees, retirees and their families, and we are pleased the GIC recognized our ongoing commitment to ensuring the broadest access to quality, affordable healthcare,” spokesman Colin Manning said in an e-mail.

Alan Sager, a professor at the Boston University School of Public Health, said that layoffs at local insurance companies could end up hitting state income tax revenues and the broader economy.

Of the state’s decision to limit health plan options, Sager said, “It’s hard to judge whether this was a carefully thought-out idea, or a reckless lunge for savings.”

Priyanka Dayal McCluskey can be reached at priyanka.mccluskey@ globe.com. Follow her on Twitter @priyanka_dayal.