Patients are protected if HMO fails, experts say

August 06, 1991|By Blair S. Walker

When New Jersey officials seized financially troubled Mutual Benefit Life Insurance Co. last month, the action marked the fifth time this year regulators had to come to the aid of a major insurance firm.

Given the close ties many health maintenance organizations have with the insurance industry, which is having problems related to real estate, health-care and insurance experts were asked Maryland HMOs with ties to insurers could experience a backlash that would leave patients without coverage.

The answer appears to be "no," because Maryland has strong regulatory safeguards to prevent the collapse of an HMO.

State officials can take over a troubled HMO until a merger partner can be found, as they did in the case of CareFirst this year, Maryland Insurance Commissioner John A. Donaho said yesterday. If no partner is located, the state can force a merger or a sale, or force other HMOs to admit patients of a failed HMO, Mr. Donaho said. He said HMOs have more stringent capital reserve requirements than insurance firms.

Privately owned CareFirst eventually merged with Blue Cross and Blue Shield of Maryland, making CareFirst one of eight insurance-affiliated HMOs in the state. Maryland has a total of 21 HMOs.

"HMOs are insurance products themselves and are regulated as insurance companies," said Donna M. Barrick, who heads Arthur Andersen & Co.'s Baltimore health law practice. "There are laws in Maryland protecting people whose health-care provider might bankrupt."

And HMOs have internal safeguards to protect patients against a collapse, said Nannette Henderson, chief financial officer for Greenbelt-based HealthPlus. The third-largest HMO in the state with 165,000 patients, HealthPlus is affiliated with New York Life Insurance Co.

"I have reinsurance coverage which allows for services to our members to be paid" for two months, Ms. Henderson said.

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