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Globe Editorial

Merger of two big health plans could help control rising costs

January 28, 2011

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WITH THE state demanding that insurers drive down health costs by negotiating better deals with hospitals, both sides are fattening up for battle. That is one reason behind the continuing expansion of the old Caritas system of Catholic hospitals and the merger that Tufts and Harvard Pilgrim health plans are mulling over. Bigger is better, both in achieving economies of scale in administration and in boosting market power.

If the merger finally materializes, consumers will be losing an option but gaining a more powerful insurer in faceoffs with hospitals and physicians’ groups. It will be up to the state Division of Insurance and the attorney general to make sure the final terms of any merger work in favor of consumers’ interest in reducing health costs.

Together, Tufts and Harvard Pilgrim would be responsible for insuring about 1.7 million New Englanders, not quite two-thirds as many as Blue Cross Blue Shield of Massachusetts. The merger should help the combined firm navigate the coming shift from fee-for-service medicine, in which doctors and hospitals are paid for every visit or X-ray, to the brave new world of fixed payments for a patient’s entire treatment.

Both Tufts and Harvard Pilgrim already have their own track records with the new payment system. As a single entity, they can combine the best elements of each company’s experience — and spare doctors and hospitals the extra paperwork of having to deal with the ins and outs of two companies’ new payment plans. A merged company would also save on the substantial investment in information technology that a new payment system would require.

Both companies are at the top of national rankings for consumer satisfaction. If the merger goes through, the challenge for the as-yet-unnamed new company will be to devise payment plans that both hold costs down and encourage the coordinated care that often is lacking in fee-for-service medicine. State regulators should make sure that the combined company’s ability to restrain costs more than makes up for the loss of one competitor in the field.