Following in the path of a host of hospital systems that are discovering that insurance risk is not their forte, a southern New Jersey health system is selling its money-losing HMO business to one of its largest competitors.
AtlantiCare, the Egg Harbor Township-based parent company of both AtlantiCare Health Plans and 450-bed Atlantic City (N.J) Medical Center, won't wash its hands of managed care completely, however. Believing it still has diverse roles to play in the community, AtlantiCare is also partnering with Horizon Blue Cross and Blue Shield of New Jersey in a joint venture.
Under the terms of the agreement, which received state approval Nov. 1, the 65,000-member not-for-profit AtlantiCare Health Plans is turning over its 11,500 HMO subscribers to not-for-profit Horizon for $2 million, according to the New Jersey Department of Banking and Insurance.
Horizon is paying AtlantiCare another $1 million for a controlling 51% interest in its third-party administration business, a claims processing firm.
"Our interest in getting into managed care was to learn how to manage care, not to be an insurance carrier," said George Lynn, president and chief executive officer of AtlantiCare. "This joint venture enables us to continue to manage the care and to spread the underwriting risk with an insurance partner."
The strategy runs counter to a recent trend where hospital-based health systems are dissolving their joint ventures with Blues plans to refocus on their core missions (Sept. 11, p. 2).
The approximately 53,500 members remaining in AtlantiCare Health Plans represent members enrolled in self-funded plans designed by employers, primarily casinos, municipalities and AtlantiCare itself.
For now, the parent AtlantiCare system, which includes a network of 22 hospitals and 2,030 physicians, plans to hang on to that piece of the business, which is risk-free, said Patricia Koelling, president and CEO of AtlantiCare Health Plans. But the venture with Horizon is "an evolutionary process" that may some day also include Horizon as a partner in administering the self-funded plans, she added.
Although 11,500 members were too few to keep AtlantiCare's HMO product afloat, they will secure Newark-based Horizon's HMO market share in Atlantic County, boosting enrollment to about 27,000.
Horizon's overall 2.3 million members--385,000 of whom are enrolled in its HMO plan--are heavily concentrated in northern New Jersey, said spokesman Fred Hillmann. The company wants to solidify its position in the southern part of the state, where there has been an explosion of growth since casinos came to Atlantic City in the mid-1970s, he said.
"For us, this is part of a revitalized and new southern New Jersey strategy," Hillmann said.
Like other health systems that are unloading or closing out their managed-care plans, AtlantiCare has been stemming losses for the health plan almost since its inception in 1995. Lynn estimated that the parent company has invested $11 million in the health plan "that we haven't gotten back." The losses alone were compelling enough reason to get out of the risk management business, he said.
Losses at the health plan required a $2.4 million cash infusion from the hospital in recent months, said Bill Heine, a spokesman for the state insurance department.
In the first six months of this year, the plan lost $1.6 million on premium revenue of $10.6 million. For every premium dollar received during the second quarter of this year, AtlantiCare spent $1.05 on medical care, Heine added.
Although AtlantiCare meets its $1.1 million net worth requirement, it has dipped below a 125% of net worth threshold. When health plans dip below that point, state insurance regulators require corrective business plans, Heine noted.
"This sale is the business plan," Heine said. "That's the corrective action."