MARCH 2000 - HMO Now Under State Control - With the birth of a new year, Harvard Pilgrim Health Care (HPHC) has found itself in severe financial difficulty after registering a $197 million loss in 1999. The first week of January, it became known that HPHC had lost $78 million more for the year than had previously been assumed. As the company teetered on the verge of bankruptcy, state officials and the Supreme Judicial Court promptly placed HPHC under state receivership.

Officials with the state's Group Insurance Commission (GIC), which oversees and administers the health plans offered by the state, has found itself placed in a difficult position. Not only are they responsible for the oversight and management of the retiree and employee health plans, but several of the eleven commissioners will play a major role in the HPHC'S restructuring.

Insurance Commissioner Linda Ruthardt and Secretary of Administration and Finance Andrew Natsios both serve on the GIC as ex officio members. In their official capacity, both are playing major roles in the current state oversight of HPHC. Each needs to balance what is in the best interest of the retirees and employees insured through the GIC with what is in the best interest of the Commonwealth.

Ruthardt, in particular, is faced with a difficult task. As state insurance commissioner, she is directly responsible for the day to day oversight of HPHC.

"Anything the GIC does at this point can tip the scales one way or the other in terms of HPHC's survival. They cannot act like any other ëprivate sector' employer under these circumstances," explains Association Legislative Liaison Shawn Duhamel. "Hypothetically, what if the GIC decided not to continue with HPHC into the next fiscal year. That contract represents 25,000 subscribers and $125 million in annual revenue.

"If the GIC leaves, does that then set off a mass exodus from HPHC? If they stay, are they getting the best deal for the retirees and employees? Dolores Mitchell (GIC Director) does not have an easy job facing her with this one."

Changes that have taken place in the health care market over the past ten years have left many of the region's most prominent HMOs on the brink of financial turmoil. While not compounding to the degree of difficulty now experienced by Harvard, a number of local HMOs, including Tufts, Fallon and Blue Cross, have had their share of difficulty in recent years. Just last Summer, Kaiser Permanente decided to discontinue its business in the Northeast.

Insurance experts point to a number of factors to explain the demise of the HMOs. In a basic sense, the managed care companies were caught by bad market timing as they expanded their business at the same time health care costs began to skyrocket. Between the rapid rise in drug costs and the cuts in Medicare reimbursements, the HMOs quickly began losing revenue in the late 90s.

Our Association has frequently advised its members to be wary of HMOs. "We've always recommended the traditional indemnity plans (freedom of choice). The promises made by the HMOs to provide benefits at such a low price never added up," said Ralph White.

"Unfortunately some cities and towns bought into the promises and subscribe to HMOs only. Others offer an indemnity plan, with the premium as high as $500 a month, leaving the retiree with no choice other than the HMO.

"But state retirees have no excuse to not join the indemnity plan. The state's indemnity plan, UniCare, which also insures Medicare retirees as a supplemental plan (OME), is financially feasible for most retirees. The money saved by joining an HMO is simply not worth the uncertainty and resulting anxiety that many of our members have suffered."