For the third time in the past 12 months, New Jersey's insurance commissioner has seized control of a failing health insurer.
This time it's 25,000-enrollee Garden State Hospitalization Plan. The Woodbridge, N.J.-based insurer writes traditional indemnity policies covering hospitalizations and markets those policies mostly to small employers.
The state said the 60-year-old insurer, which is not an HMO, lost nearly $3.4 million on operations in the 12 months ended in March. The company is licensed as a not-for-profit hospital service corporation.
Garden State officials weren't available for comment.
Jaynee LaVecchia, state banking and insurance commissioner, placed the company under state supervision Aug. 13 and sought court approval to have the plan deemed insolvent. Superior Court Judge Anthony Parrillo in Mercer County signed a temporary restraining order Aug. 20 preventing any transfer of the plan or its assets while the state prepares for Garden State's liquidation. A hearing on the liquidation is set for Sept. 27.
Garden State's failure to meet minimum net worth requirements spurred the takeover. In the quarter ended March 1998, the company had a surplus of $1.75 million. But a year later, its cash cushion had vanished, leaving a $1.6 million deficit.
Although this third New Jersey health insurance flop involves less money and fewer enrollees than the first two, providers are no less concerned.
Last year, LaVecchia's department seized control of two HMOs-HIP Health Plan of New Jersey in North Brunswick and American Preferred Provider Plan in Newark. Both were ultimately liquidated.
"Certainly with 190,000 and 40,000 members, respectively, those were much bigger payers. However, we are not excited by the trend," said Sean Hopkins, vice president of health economics at the New Jersey Hospital Association.
The insolvencies coincide with operational losses experienced by 60% of New Jersey hospitals.
"The issue has been what to do with the bills that have been accumulated and left behind," said Donald Malafronte, director of the Urban Health Institute, a Roseland, N.J.-based healthcare consulting firm.
Hospitals have been pushing the state to create an HMO guaranty fund to help cover losses stemming from the two HMO failures and future insolvencies.
"Based on our calculations, hospitals are still holding the bag for approximately $100 million," Hopkins said of the HIP and American Preferred liquidations.
Garden State's outstanding and future claims will be paid from a life and health guaranty fund created in 1991.
Hospitals and surgical centers will recover 80 cents on the dollar, Hopkins said. Of the estimated $4 million to $6 million in unpaid claims, providers would lose $800,000 to $1.2 million after settling with the state.