Sunkist Grower Inc.’s Self-Insured Plan To File Bankruptcy
Sunkist Growers Inc.'s self-insured health plan, SGP Benefit Plan Inc., has "folded" due to "spiraling" health costs and "poor management," the Los Angeles Times reports. The plan halted operations in November and is expected to file for Chapter 7 bankruptcy soon. The 23,000 members of the health plan have been transferred to another agriculture trade group's self-insured health plan or have found coverage elsewhere, the Times reports. Sunkist said the "collapse" of SGP was caused by rising physician and drug costs, as well as "faulty" medical information management software, which caused the health plan to underestimate what it needed to charge in premiums to cover its expenses. Despite a series of rate hikes and changes to the plan in 1999, "it wasn't enough" to keep the plan operating. SGP owes about $10 million in unpaid claims to about 4,800 providers. Although Sunkist signed an agreement with California in 1996 "guaranteeing it would cover any claims that exceeded the plan's reserves," it withdrew from an agreement to pay $2.5 million to cover claims after a consensus on the proposed wording of the deal could not be reached. Because of the agreement with the state, Sunkist may still be financially liable for the claims. Sunkist officials said their liability will likely be determined by a trustee or court. Sunkist spokesperson Mike Wootton said, "My sense is that most people understand that Sunkist was not running this thing." Although the state Department of Insurance was aware of the problem, it lacked the authority to take action and instead helped members find other health coverage.
The Times reports that SGP's failure illustrates how rising health costs can cause problems for employers who self-insure if they "miscalculate the level of claims." Because self-insured plans are not regulated by the state, they can be more affordable than private coverage. However, if employers do not keep enough funds in reserve, "a wave of expensive medical problems" can force self-insured plans to fail. Jim Kinder, chief executive of the Self-Insurance Institute of America, said, "You can't walk away from the risk. With private insurance, you pay a third party, and they handle it. When you self-insure, you inherit the problems." Typically, small companies do not have the resources to self-insure, but large companies with "sufficient reserves" can make them work. Kinder added, "When you really get down to the brass tacks of it, some employers really aren't good candidates for self-insurance because their balance sheets aren't strong enough and they incur greater medical expenses than they have revenues to cover them" (Fulmer/White, Los Angeles Times, 1/4).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.