Citing medical inflation and reduced government fees, PacifiCare Health Systems is closing its managed-care unit in Kentucky and Ohio, where it has almost 61,000 customers, including 6,300 Medicare HMO members.
The Santa Ana, Calif.-based health insurer, which owns the nation's largest Medicare+Choice plan, is the third company this month to announce its intentions to exit the Medicare HMO business by the end of this year.
On June 2, Cigna Corp. said it will pull out of most major Medicare markets by Dec. 31. Less than a week later, Providence Health Plans said it is discontinuing its Medicare HMO in eight Oregon and Washington counties. Several other HMOs are expected to quit the Medicare business by July 3, the deadline for informing HCFA of such plans.
The pullout will allow PacifiCare to focus on its core Western operations, said company spokesman Ben Singer. The insurer had been hinting about leaving its Midwestern Medicare HMO business since last November and ultimately decided that a simultaneous exit from its commercial lines there made the most sense.
"In all of the Western states in which we operate, we're the No. 1 or No. 2 player in either the Medicare or commercial businesses or both. But in Ohio and Kentucky, we're No. 5 or No. 6," Singer said. "We eventually decided that if we weren't going to be able to make a go of it in the long term, we should cut our losses."
PacifiCare expects to post a second-quarter charge of $3 million to $4 million, or 5 cents to 6 cents per share, to cover severance pay and the cost of surrendering its state licenses.
Excluding one-time charges and gains, the company's second-quarter earnings should reach about $1.94 per share, up from $1.49 per share in the same quarter last year, Singer said. Full-year earnings should rise 25% from $6.23 per share in 1999.
PacifiCare currently serves 4 million members in Arizona, California, Colorado, Kentucky, Nevada, Ohio, Oklahoma, Oregon, Texas, Washington and the islands of Guam and Saipan. Its withdrawal from Ohio and Kentucky will affect 89%, or 54,400, of its members in HMO, PPO and indemnity plans there and 6,300 seniors enrolled in Secure Horizons, its 1 million-member Medicare HMO.
PacifiCare has signed a deal with Indianapolis-based Anthem Blue Cross and Blue Shield, permitting Anthem to provide comparable coverage for commercial members affected by the pullout. Its Medicare HMO members, though, will have to switch back to traditional Medicare, find new carriers or buy supplemental insurance.
Singer said PacifiCare has no plans to exit any of its remaining commercial markets but that it could decide to pull out of other Medicare markets by July 3.
"It remains to be seen," Singer said. "While we remain highly committed to the (Medicare) program, we're also cognitive of the challenges it poses."
During the past few years, most HMOs have been socked by reduced Medicare payment rates and skyrocketing drug costs. As a result, many have tried to limit their Medicare HMO exposure by selectively withdrawing from less profitable markets, raising premiums and changing benefit offerings.
PacifiCare has had a harder time than most. In January, the company announced plans to cut 450 jobs, or about 5% of its workforce, as it moved to centralize and consolidate its corporate and regional operations.
And in February, Alan Hoops, PacifiCare's president and chief executive officer, said he would retire by March 31, 2001, but would stay on during the search for a successor.