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NYC files suit to block health plan merger


NEW YORK--New York officials have filed a lawsuit objecting to the pending merger of not-for-profit health plans Group Health Inc. and HIP Health Plan of New York.

City lawyers, who filed an antitrust lawsuit Monday in the U.S. District Court for the Southern District of New York, were in court Tuesday morning asking a judge to issue a temporary restraining order against the merger, which the judge declined to issue.

The merger is scheduled to occur Wednesday.

If the merger were allowed to take effect, the new company would control about 93% of New York's municipal health care market, resulting in substantially higher premiums for the city, according to the lawsuit. The city currently spends about $3.1 billion per year in basic medical premiums for its health care plans, which cover more than 1.3 million employees, retirees and dependents.

"A merger of GHI and HIP would eliminate all competition in the relevant market and would allow the merged entity to exercise its resulting monopoly by substantially raising the prices it charges without fear of any market constraint," the complaint stated. According to the city, each percentage point increase in the insurance premiums charged by HIP and GHI will cost the city an additional $27.5 million annually.

A GHI spokeswoman said the city was incorrect about the potential impact on rates. While the insurer was disappointed by the city's decision to sue, it is prepared to continue working with the city to resolve the matter while also vigorously pursuing the issues in court, the spokeswoman said.

In an attempt to compete with large national managed care players in their core Northeast market, the New York-based insurers decided to merge in September 2005. The combined entity would have a membership of more than 4 million people and combined revenues of more than $7 billion.

GHI operates mainly in New York, while HIP also has operations in Connecticut, Massachusetts and New Jersey.

In a statement, HIP said the merger with GHI will give New Yorkers a health plan that will be able to compete with the national plans that are increasingly dominating the health insurance marketplace.

"The affiliation of GHI and HIP will have a positive impact on our largest customer, the City of New York," HIP said in its statement.