FAILED PLANS: NJ, WA Seize Control of More Insurers
Caving under unprofitable state contracts -- including a Medicaid managed care product it helped create -- Washington state's physician-owned KPS Health Plans has been seized by the state insurance commissioner's office. In 1998, KPS lost $2.8 million on $98.7 million in revenues, "failing to meet a statutory net worth requirement of $3 million." The plan also saw losses in 1996 and 1997. Observers say KPS "erred by underbidding" for state managed-care contracts, which cover about one-third of its 72,000 enrollees. In the late 1980s, the plan "launched a pilot Medicaid managed care program that was replicated statewide." With competition in its service area increasing, however, KPS sought a merger partner earlier this year, but was ultimately unable to find anyone willing to take "its unprofitable state contracts along with the lucrative commercial business," said KPS board Chair Mark Adams. Local providers support the plan but have little confidence it will survive unchanged: "There's certainly a lot of community apprehension that once (state regulators) have intervened, it becomes a downward spiral," said Dave Gitch, president and CEO of Harrison Memorial Hospital in Bremerton (Jaklevic, Modern Healthcare, 8/9 issue).
Unable to Compete
In New Jersey, the state insurance commissioner Friday seized the operations of the last plan in the state to provide "hospital- only" coverage. Garden State Hospitalization Plan reported losses of $3.4 million over the last year, dropping below the state's minimum required surplus of 2.5% of net premium income. The company's policies cover hospital care for 26,000 people through a joint venture with United States Life Insurance Co., which provided corresponding medical coverage. But Garden State has "just been unable to compete in this marketplace," said Insurance Department spokesperson Bill Heine. "They've been over-optimistic about how they can dig themselves out." A guaranty fund, created in the wake of the high-profile failures of HIP Health Plan of New Jersey and American Preferred Provider Plan Inc., will cover 80% of Garden State's unpaid claims - estimated to be between $4 million and $6 million - with funds assessed from the 350 health insurance companies doing business in the state (Washburn, Bergen Record, 8/14).