In the latest move in the ever-consolidating health care industry, two of Massachusetts’ largest insurers have begun making the pitch for why they, too, should merge.
The chief executives of Harvard Pilgrim Health Care and Tufts Health Plan told the Globe they must combine in order to provide more-affordable coverage to more people across New England, and to better compete against giant national insurers.
Together, they said, they can grow in new markets, invest in consumer-friendly apps and tele-health programs, slash administrative expenses, and moderate future increases in health insurance premiums.
“We do think there’s an opportunity for us to improve the affordability of the products that we offer,” said Tom Croswell, the chief executive of Tufts. “We can’t control hospital prices or pharmaceutical prices, but we do think we can have a real impact.”
Croswell and Michael Carson, the CEO at Harvard Pilgrim, announced the merger in a news release in August, but they had not spoken about it publicly until a recent interview with the Globe.
The two have also begun meeting with state and federal regulators, whose approval they need for the deal, and health care consumer advocates.
Tufts and Harvard Pilgrim announced the deal just months after Lahey Health and Beth Israel Deaconess Medical Center completed their long-planned merger, creating a big new hospital system to compete with Partners HealthCare.
Croswell and Carson did not detail how they plan to cut costs through their merger.
They acknowledged there would be some layoffs — in total, the companies now employ nearly 4,800 people — but said they haven’t determined who and how many people would lose their jobs. Both companies have begun notifying employees about severance packages.
Regulators are likely to examine how the deal to create a regional health insurance powerhouse would affect health care costs, as well as choice for consumers.
“The argument that many people have made over the course of a long time in health care is that consolidations can create efficiencies that reduce cost,” Governor Charlie Baker — a former CEO of Harvard Pilgrim — recently told the Globe. “It hasn’t really played out that way.”
Even when companies reduce costs by merging, they might not pass those savings on to consumers.
Economists have found that less competition among health insurers tends to raise premiums, said Leemore S. Dafny, an antitrust expert and professor at Harvard Business School.
Harvard Pilgrim and Tufts have close to 1.2 million members each. After the merger, the new company would still be smaller than Blue Cross Blue Shield of Massachusetts, the largest insurer in the state.
All three are structured as nonprofits but compete with national for-profit insurers such as Aetna, Cigna, and UnitedHealthcare.
Harvard Pilgrim and Tufts executives have tried merging before, including in 2011, but decided not to move forward at the time.
But both companies have evolved since then. Now, for example, a big part of Tufts’ business is covering people who are enrolled in Medicaid, the public program for low-income individuals.
Harvard Pilgrim remains focused on private insurance plans, which it sells to employers, though it has struggled to maintain its membership numbers in recent years. Last year, Harvard Pilgrim was in negotiations to be acquired by Partners, the state’s largest hospital system. Those discussions ended without a deal.
Meanwhile, national for-profit insurance companies are aggressively looking to grow in Massachusetts, increasing the urgency for a merger of two local nonprofits, according to Croswell and Carson.
“We need to step up our competitive game,” Carson said.
By merging into one larger company, Harvard Pilgrim and Tufts would have more clout in the local health care market than they do individually. But Robert Mechanic, a senior fellow at Brandeis University, said it probably would not be enough to pressure the state’s powerful hospital systems into curbing their prices.
“For the big systems — and increasingly, we are a market of big health systems — I don’t think they’ll be able to get better rates with this merger,” Mechanic said. “I wouldn’t expect it to bring down prices.”
The leaders of Harvard Pilgrim and Tufts were cautious in describing how their combined leverage would influence the market.
“We’re not miracle workers. We’re not going to be able to turn around the whole state,” Croswell said.
Still, as a large local nonprofit, they may be able to compel health care providers to collaborate on new insurance contracts that push doctors and hospitals to provide care on a budget.
“We certainly think it’s better to be looking at a merger between two regional nonprofits . . . rather than one of these entities merging with a large national for-profit that may not have as much invested in Massachusetts,” said Amy Rosenthal, executive director at the consumer advocacy group Health Care For All. “At the same time, there’s a number of issues we’re going to want to monitor.”
Rosenthal hopes the merger would help to reduce premiums and out-of-pocket costs for consumers, while boosting access to behavioral health services and maintaining broad networks in which patients can receive care.
She also wants the companies to stay committed to providing subsidized coverage on the state-sponsored Massachusetts Health Connector.
“There’s a real opportunity for improvement if that’s the direction that the merger goes in,” Rosenthal said. “We are still trying to learn about what the implications are.”
The deal needs approval from the US Department of Justice, the Massachusetts Division of Insurance, and Attorney General Maura Healey’s office — as well as from regulators in four other states. Together, Harvard Pilgrim and Tufts have business in New Hampshire, Maine, Connecticut, and Rhode Island. They have yet to file their plans with state regulators and expect the regulatory process to continue through summer 2020.
The insurers still must decide on many critical details, including whether and how to change their brand names and how to integrate their complex computer systems.
Croswell, 70, is poised to become CEO of the combined company. He has led Tufts since 2016.
Carson, 50, would be president of the new company.
“The headwinds and changes in health care are so drastic, the competitive market changes so drastically,” Carson said. “We can’t stand still.”
Priyanka Dayal McCluskey can be reached at priyanka.mccluskey @globe.com. Follow her on Twitter @priyanka_dayal.