When an HMO goes belly up, who pays? In some states, the answer is other HMOs.
The National Association of Insurance Commissioners says 10 states have statutes or regulations to ensure that providers are paid and that covered individuals aren't balance-billed when a health plan can't meet its financial obligations. In those states, other HMOs must foot the bill through "guaranty funds." While each state's fund is structured a bit differently, most call for an assessment of all the state's health plans at the time of an insolvency.
Providers in two more states have climbed aboard the HMO guaranty bandwagon. Shaken by the recent state takeover of insolvent HIP Health Plan of New Jersey, providers in the Garden State and neighboring New York are clamoring for financial protections of their own.
The momentum appears to be strongest in New Jersey, where the financial bruises of HIP's insolvency are a fresh reminder of what's at stake. Regulators seized control of HIP after its reserves fell to a negative $20 million net worth as of Aug. 30, 1998. At the time, providers were owed an estimated $100 million (Sept. 28, 1998, p. 14).
In November 1997, the North Brunswick, N.J.-based plan entered a contract with Pinnacle Health Enterprises to provide care for its roughly 200,000 enrollees. But Pinnacle, a subsidiary of PHP Healthcare Corp., headquartered in Reston, Va., didn't fulfill the contract, HIP charges. The plan recently brought suit again Pinnacle and its parent corporation charging multiple counts of fraud.
Under a recent pact between the insurance commissioner and the New Jersey Hospital Association, hospitals will continue to provide care to HIP enrollees on the condition that the state presses for guaranty fund legislation. The state has drafted a bill that would assess HMOs in the state to cover the contractual obligations of an insolvent plan. The measure calls for an assessment of no more than 3% of a plan's net written premiums in the first year and no more than 2% in subsequent years. Garret Hengeli, a legislative liaison to the insurance department, had no estimate of the amount of money the state might raise.
But the New Jersey Association of Health Plans estimates the state's two dozen HMOs could face a $100 million assessment, costing roughly $50 per covered enrollee.
Meanwhile, two other bills have surfaced, one that calls for reimbursing providers for past-due claims from the state's general fund, and another that assesses health plans to cover those old claims. The NJHA supports both.
Paul Langevin, president of the NJAHP, says a guaranty fund is a bad idea and would drive up premium costs. "It's a blank check for future bad business decisions," he says, adding that health plans that have done their homework and entered solid contracts should not be penalized for the mistakes of troubled plans.
While he doesn't deny providers' right to be paid for services rendered, Langevin opposes treating doctors and hospitals above other creditors. When a hospital goes belly up, there's no such thing as a guaranty fund for doctors' salaries, he says.
A spokesman for HIP Health Plans, the New York-based parent of New Jersey's HIP, did not respond to a request for an interview on the guaranty fund movement.
But Howard Gold, senior vice president of managed care at North Shore-Long Island Jewish Health System in Great Neck, N.Y., says the HIP situation isn't unique and that other plans could be vulnerable. "It could have been anybody," he says.
Gold says any provider or HMO that agrees to accept responsibility for the care of a given population for a percentage of premium is undertaking a financially risky proposition. "Do you need a new regulatory device that government would use to protect the consumer (from losing ready access to providers under the contract and continuity of care)? Generally, yes, you need a very close look at this," he says. "Even if the premium went up, that might be an acceptable amount of money . . . to allow an HMO to enter these kinds of (risk) contracts," Gold says.
HIP's situation ignited ongoing worries about HMOs' financial condition in New York. Last month, Daniel Sisto, president of the Healthcare Association of New York State, called on the New York State Department of Insurance to establish a health insurance guaranty fund.
Sisto's organization has been on heightened alert since the collapse of Norwalk, Conn.-based Oxford Health Plans last year.
An insurance department spokeswoman failed to respond to repeated calls for comment on HANYS' proposal. HANYS has yet to receive a response.
And although the New York Health Plan Association says HMOs already have to meet stringent requirements for reserves and escrow accounts, providers fear those standards may not be enough.
"Given the recent problems of several large HMOs and the continued competition within the health insurance market, it is not unreasonable to anticipate and plan for a health insurer's failure that leaves significant unpaid claims due hospitals and other healthcare providers," Sisto argues.