PEP, May 2008: HIP/GHI conversion to profit status awaits state okay

Members’ health care coverage will not suffer if the state okays a plan to create a for-profit corporation through the merger of the GHI and HIP health insurance carriers, according to their top executives.

In 2006, GHI and HIP maintained their nonprofit status as they affiliated under a corporate umbrella known as Emblem-Health Inc.

The New York State Dept. of Insurance is now considering their application to convert from nonprofit to for-profit status, which would make EmblemHealth a publicly traded company. A decision is expected later this year.

If the Insurance Dept. approves the for-profit status of the new entity, an initial public offering of stock in the new firm would be held and the proceeds would go to the state. The conversion is expected to bring in nearly $300 million in fiscal 2009 and additional revenue in subsequent years.

The plan of GHI and HIP to establish a for-profit corporate parent prompted New York City to go to court because it contends the city is entitled to a fair share of the revenue from the IPO. The for-profit conversion would substantially drive up the cost of the city’s health-care coverage, said city officials. Nearly 95 percent of the municipal workforce is covered by GHI and HIP, which for decades have provided affordable health care to municipal employees and retirees.

After the Insurance Dept.’s Jan. 29 hearing on the proposal to transform HIP and GHI into a single for-profit insurer, the Municipal Labor Committee wrote Mayor Michael R. Bloomberg to express its “serious concerns” about the proposed conversion. The MLC, made of most of the unions representing employees of New York City, including DC 37, wants proceeds from the conversion to be used to bolster health care coverage of city workers and retirees.

Over the past two years, top GHI and HIP officials, including Anthony Watson, the chief executive officer of HIP, have assured municipal labor leaders that the merger will not adversely affect the health care benefits of the hundreds of thousands of employees and retirees covered by HIP and GHI.