Aligning Health Plans After a Merger: Strategies for Cost Savings & Compliance

When companies merge, executives often focus on financials, technology or market positioning. But for employees, the first question is often more personal: What happens to my benefits? Health plan integration may not be the flashiest part of a merger, but it plays an outsized role in employee retention, compliance and overall deal success.

It is important to recognize that mergers often involve not just two companies but multiple organizations coming together, each with their own benefits philosophies. For example, we have worked with clients consolidating multiple operating companies (OPCOs) and their benefit plans into one rolled-up program. This complexity goes far beyond a simple two-company merger and introduces unique challenges and opportunities.

The Challenges of Health Plan Integration

Merging two or more organizations means merging multiple benefit philosophies – and rarely do they align neatly. Common challenges include:

• Different Funding Arrangements: One entity may be fully insured while another is self-funded. Each approach carries unique implications for financial risk, compliance and reporting. When consolidating multiple OPCOs, these differences multiply, requiring careful evaluation to determine the best funding model for the combined entity.
• Carrier and Network Disruption: Changing carriers or networks can disrupt employees’ access to trusted doctors or hospitals. This risk is heightened when multiple OPCOs have different carriers, as consolidation may force a network change for some employees. Even if costs improve, disruption to provider access is one of the fastest ways to erode employee satisfaction.
• Varied Plan Designs and Contributions: Differences in deductibles, out-of-pocket maximums or employer contribution levels can create perceptions of “winners and losers.” When consolidating multiple OPCOs, plan design variations and contribution disparities become more pronounced, complicating efforts to create a unified plan that feels fair to all employees.
• Compliance Complexity: Mergers often trigger new compliance obligations, including ACA controlled group aggregation, nondiscrimination testing and COBRA responsibilities. A critical compliance consideration is whether the combined entity forms a control group under IRS rules, which can affect plan administration and reporting. Overlooking these issues can lead to costly penalties.

Strategic Considerations for Employers

Aligning health plans requires balancing business priorities with employee experience. A few strategic questions to address:

• When is the right time to consolidate plans? Should you align plans immediately or wait until the next renewal? Immediate alignment may simplify administration but can create disruption. A phased approach often allows for smoother employee adjustment. For example, starting consolidation with a few OPCOs that have similar benefits can serve as a jumping off point. This approach helps get the program off the ground and builds momentum to grow the consolidated plan over time.
• How can benchmarking improve your benefits strategy? The merged entity’s new size may open doors to improved pricing, broader funding options and better plan features. Conducting a market review can uncover opportunities to strengthen the benefits package while optimizing costs. Additionally, benchmarking target companies’ benefits during future acquisitions can inform negotiations. If a target’s benefits are significantly more or less costly, those differences can be factored into the sale price or integration strategy.
• How do you maintain employee retention during changes? Benefits changes can make employees feel vulnerable during a time of uncertainty. To counter this, some companies offer “bridge” benefits, transition stipends or enhanced communication to reassure employees that their needs are being prioritized.
• How do you balance cost savings and turnover risk? Cost savings are often a driver of consolidation, but cutting too aggressively can backfire if it fuels turnover. Successful integrations balance financial efficiency with retention of key talent. Consolidation also brings benefits such as having one carrier and one point of contact, which simplifies administration. A larger combined pool increases buying power and spreads risk over more participants, which can lead to better rates and plan stability.

Best Practices for a Smooth Transition

• Conduct a Pre-Merger Audit: Understand both organizations’ benefit structures, claims history and compliance risks before making changes. When multiple OPCOs are involved, this audit becomes even more critical to identify differences and potential integration challenges.
• Engage Carriers and Vendors Early: The sooner carriers, TPAs and consultants are brought into the conversation, the more options you’ll have for creative solutions that minimize disruption and maximize value.
• Develop an Integration Roadmap: Set clear timelines and responsibilities for aligning benefits. Map integration with broader HR and business goals, not just benefits administration. Starting with a subset of similar OPCOs can help create a scalable roadmap for future consolidation.
• Communicate Transparently: Employees care less about what is changing than why it’s changing and how it affects them. Clear, consistent messaging can preserve trust and morale during complex integrations.

Final Thoughts

M&A deals succeed or fail on more than just balance sheets. Employee health benefits are a powerful signal of how much leadership values its people. By approaching health plan integration with foresight, balance and empathy, employers can unlock financial synergies while retaining the talent that makes the merger worthwhile. Consolidating multiple OPCOs into a single plan offers benefits such as simplified administration, enhanced buying power and risk spreading. With a strategic phased approach and attention to compliance and employee experience, organizations can turn a complex challenge into a competitive advantage.

For expert guidance and support with health plan integration after mergers, contact our M&A team to help you navigate this complex process smoothly and successfully.