Lifeguard Officials Announce Company Will Cease Operations on Dec. 31
As expected, officials from the San Jose-based HMO Lifeguard on yesterday announced that the insurer will halt operations on Dec. 31, the San Francisco Chronicle reports (Abate, San Francisco Chronicle, 9/25). Department of Managed Health Care officials on Monday announced there were "strong indications" that the HMO would cease operations (California Healthline, 9/24). DMHC officials last week assigned a conservator to assume control of Lifeguard because the not-for-profit HMO failed to meet state solvency requirements. The HMO's financial reserves fell below the state's requirement of $17 million to $18 million, according to DMHC spokesperson Steven Fisher. Lifeguard also has liabilities of more than twice its assets, causing concerns about its ability to pay creditors (California Healthline, 9/16). Rick Shaw, assistant vice-president of the rating firm A.M. Best, said a "major factor" contributing to Lifeguard's financial collapse was "significant losses" from thousands of CalPERS members, whose claims "far exceeded" premiums collected, the Times reports (Lee, Los Angeles Times, 9/25). In addition, an "escalation in unanticipated claims" and Lifeguard's costly new claims processing system played a part in the company's financial problems, the AP/Fresno Bee reports (AP/Fresno Bee, 9/25). Lifeguard is not expected to declare bankruptcy, which means it will likely pay its debts to providers, William Parrish, CEO of the Santa Clara County Medical Association, said (California Healthline, 9/24). Lifeguard CEO Mark Hyde said his company has set aside $34 million to pay claims (AP/Fresno Bee, 9/25). In the meantime, other insurers in the area, including Kaiser Permanente and Blue Shield of California, are preparing to accept displaced Lifeguard members. Blue Shield has temporarily increased staffing levels in its San Jose office, the San Jose Mercury News reports (Feder Ostrov, San Jose Mercury News, 9/25).
The Los Angeles Times reports that Lifeguard's closure is another step in the continuing "consolidation [of] the HMO industry" in California. By the end of 2002, 17 HMOs will be providing coverage in the state, down from 21 in March. HMO enrollment in the state fell by 640,000 members between March 2001 and March 2002. The consolidation trend means fewer choices for consumers, the Times reports. Many people who have left HMOs have been switching to "less restrictive" preferred provider organizations, according to the Times (Los Angeles Times, 9/25).This is part of the California Healthline Daily Edition, a summary of health policy coverage from major news organizations. Sign up for an email subscription.