CALIFORNIA ADVANTAGE: CMA Calls It Quits For Troubled Plan
The California Medical Association's "long-troubled effort ... to create a doctor-owned health plan to compete with the state's powerful HMOs fizzled out Tuesday when the plan, California Advantage, said it intends to file for federal bankruptcy protection," the Los Angeles Times reports. According to the CMA, the health plan, which was started in 1995, "was wracked by problems, including management turmoil, an unenthusiastic response by the state's physicians and stiff marketplace competition." CMA Executive Vice President Dr. Jack Lewin said, "The original vision of California Advantage turned out to be much more difficult than we expected. It was a noble effort, but it continually lacked capital."
Plan Problems
The Times reports that the plan overestimated the number of physicians "willing to invest $1,250 each in the venture. Slightly more than 20% -- or 7,600 -- of the CMA's 35,000 members joined up with the health plan," which "fell far short of the 15,000 to 20,000 physician investors needed for the plan to be viable." However, it was still more than the number of patients that joined the plan -- 7,000. Lewin said that "low fees paid by managed-care companies in California and a high percentage of sicker -- and costlier -- patients also hurt the plan." He said, "Physicians, by their nature, wanted to take care of patients, and they signed up a lot of sick people from their own offices. From an insurance point of view, that's not a winning strategy. We didn't go out and try to avoid people with chronic conditions like cardiac disease or AIDS." The Times reports that Legion Insurance Co. of Pennsylvania, California Advantage's underwriter, "will assume operations of the health plan" (Olmos, 6/3).
