State takes over struggling insurer
By John Duchemin
Advertiser Staff Writer
The state has taken operational control of health insurer University Health Alliance in an attempt to keep the company afloat through tough times.
The move to "rehabilitate" the company known as UHA will have no short-term effect on customers, state officials said. But rehabilitation is necessary because the company failed to improve its financial condition after several weeks of close supervision by the Insurance Division of the Department of Commerce and Consumer Affairs.
The state will try to find an investor or buyer to rescue the insurance company, which has fallen about $2.3 million short of minimum asset requirements but is still financially solvent, said Insurance Commissioner Wayne Metcalf.
UHA had $711,000 in cash on March 31, according to its most recent financial report to the state. The company had net income of $590,000 in first-quarter 2001.
"UHA is still meeting its obligations and paying bills as they become due," Metcalf said, "but there's a shortfall when you consider the anticipated liabilities based on a membership of that size."
UHA, which lost $1.1 million in 2000, has fallen afoul of tightening conditions in the insurance industry, Metcalf said.
Small insurers such as UHA depend on bigger insurance companies to "reinsure," or buy into, policies, meaning the big company will share some of the risks. But rising health-care costs, plus a series of natural disasters in Europe, have left those reinsurers strapped for cash.
As a result, reinsurance has become more expensive — and UHA has been unable to find an affordable reinsurer, Metcalf said. The company is left holding the entire risk for its policies — a position that, in the long run, is financially untenable, Metcalf said.
For instance, one UHA policy-holder endured a complicated birth that resulted in her transfer to the Mainland — and UHA ended up paying about five times the anticipated cost, Metcalf said.
Metcalf placed UHA under state supervision in May. Now, an Insurance Division appointee will oversee day-to-day affairs of the company until it regains stability, Metcalf said.
UHA officials did not return calls requesting comment. The company is run by Max Botticelli, its chief executive officer, and Frank Appel, its chief operating officer.
UHA, a 5-year-old company, has about 32,000 policy-holders, making it a small player in the market. It is one of only a handful of traditional health insurers and health maintenance organizations in the state. HMSA, Kaiser, HMAA and Straub are the other major competitors.
Metcalf emphasized that state-run rehabilitations often save insurance companies. For example, insurer HIG became insolvent in the wake of Hurricane 'Iniki in 1992. The state stepped in, shaped the company up, and found a buyer in Vesta Insurance Companies. The former HIG continues to operate as a Vesta subsidiary, Metcalf said.
"Customers should not panic," he said. "The insurance commission is committed to do everything we can to ensure that UHA is viable. If we thought it was a lost cause, we'd go straight to insolvency."
