By Joan Gralla

NEW YORK (Reuters) - New York City is trying to block two nonprofit health insurers from converting to a for-profit company by questioning if it was legal to grant stock options to the chief executive officer of one of them, Mayor Michael Bloomberg said on Tuesday.

Bloomberg noted the city had received its health insurance from the two companies -- Health Insurance Plan of Greater New York and Group Health Incorporated -- for more than 60 years, adding: "We don't need city dollars intended to protect hard-working city employees and retirees used instead to pad the compensation of health-care executives."

The state stands to reap nearly $1.8 billion over several years from the conversion as it would be the biggest shareholder in the new combination.

But Bloomberg fears the city won't be able to afford the higher insurance premiums for public employees and retirees that he said will result from the conversion.

The mayor, who has been bashing the deal for months, said health-care costs could climb by hundreds of millions of dollars.

Bloomberg said in a statement he had sent the state insurance superintendent a memo outlining his objections to the granting of stock options to HIP's chief executive.

"The options, reportedly worth as much as $20 million, according to the memorandum likely violate Insurance Law 7317, which provides that 'The conversion transaction shall not result in inurement to any private person or entity'," the mayor said in a statement.

A spokesmen for Eric Dinallo, the insurance superintendent, said that after holding public hearings, the department requested more information from the new company that would be formed from the nonprofits.