WATERTOWN, Mass. – It is official: Tufts Health Plan is re-entering the Rhode Island market.

Last week, after being granted an HMO and a PPO license by Health Insurance Commissioner Christopher F. Koller’s office, the Massachusetts-based insurer announced that it will begin offering its PPO product to employers for a Jan. 1, 2009, effective date.

The company also said it plans to open a sales office in Providence and start advertising locally, and it has hired staff to manage the expected increase in membership.

Tufts will be the third commercial health plan in Rhode Island, along with Blue Cross & Blue Shield of Rhode Island – which controls more than two-thirds of the market – and UnitedHealthcare of New England.

“Rhode Islanders deserve to have options when it comes to choosing their health insurance, and we believe Rhode Island employers, consumers and providers will benefit from Tufts Health Plan’s commitment to quality, health management, wellness and superb customer service,” said James Roosevelt Jr., president and CEO of Tufts, in a news release.

Tufts, a nonprofit founded in 1979, covers nearly 690,000 lives, primarily in Massachusetts. It has done business in Rhode Island before, but it pulled out in 1999 – right as Harvard Pilgrim Health Care of Rhode Island was shutting down – to focus its business on the Bay State.

In June, Tufts applied to Koller’s office to re-enter the local market; at the time, Roosevelt said Rhode Island looked like a particularly good place to expand the company’s business because local employers only had two choices now for health coverage.

Coincidentally, the R.I. General Assembly was considering legislation to end the use of “health status” as a rating factor in the small-group market, which the existing law only allowed to insurers that were grandfathered in; Tufts lobbied in support of the measure, and its passage gave Tufts a more even playing field in entering the state.

In the news release, Gov. Donald L. Carcieri, who supported the bill and welcomed Tufts’ return, noted that he has “long advocated for increased competition among health plans.” He added that Tufts’ entry into Rhode Island “will give consumers more health care insurance choices at competitive rates,” and that Tufts, with its “national reputation for excellence,” would “add an important aspect to the state’s health insurance landscape.”

Koller, for his part, said the availability of another “nationally respected regional insurer” would give Rhode Islanders “more choice and more competition on service and quality,” but he warned that “it will not by itself reduce premiums.”

Eighty-five percent of the cost of health insurance in Rhode Island is driven by the cost of medical care, Koller noted, and that is rising at a rate of 8 to 10 percent a year. “We welcome health insurers who can focus their efforts to reduce these underlying cost drivers,” he said.

Koller added that his office would monitor the effects of Tufts’ entry into the market to ensure that there is not a repeat of the “damaging price war” that took place in Rhode Island in the 1990s between Harvard, Tufts, Blue Cross and United.

Along with getting licensed in Rhode Island, Tufts also had to negotiate contracts with local health care providers, and it has done so, according to the news release. In Massachusetts, Tufts has the slowest-rising premiums, and Roosevelt said the company’s “unrelenting focus on reducing administrative costs” and its “thoughtful medical management program” would assure improved quality and low costs to Rhode Island subscribers as well.

In 2007, Tufts Health Plan was named the No. 2 health plan in the country for both HMO/POS combined products by U.S. News & World Report and the National Committee for Quality Assurance, based on clinical performance and member satisfaction measures. For more information about Tufts, visit www.tuftshealthplan.com.