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Indiana sues Maxicare health plan

Indiana Insurance Commissioner Sally McCarty has filed a lawsuit against the officers and directors of Maxicare Health Plans of California, parent of the bankrupt Maxicare Indiana, which was placed in receivership on May 4.

The Indiana Department of Insurance (DOI) previously seized and shut down Maxicare Indiana on May 4, 2001, to protect the health benefits of the HMO's 99,000 members. Then on June 25, 2001, the company's stock was delisted from the Nasdaq at the open of business, per the company's request. Maxicare of California, which was serving 254,000 members in California, filed Chapter 11 in United States bankruptcy court on May 25, 2001.

The seizure came after McCarty met with company officials and learned the state's second-largest HMO had lost $14.6 million in the first three months of this year. Last year, Maxicare Indiana lost $8 million and 40 percent of its members when it closed its unprofitable Medicare operations in Indiana.

The lawsuit alleges "fraudulent concealment and breach of contract" and asks the court to order the directors and officers to:

  • Pay for the 60-day continuation of the Indiana plan as required by state insurance statutes.
  • Pay for additional administrative expenses caused by Maxicare's failure to have the required statutory premiums.
  • Pay the outstanding debts of Maxicare.
  • Pay for a financial accounting of Maxicare Health Plans.
  • Pay for all costs of the lawsuit and all other proper relief.

State insurance law requires McCarty to assess other Indiana HMOs in the event one of them doesn't have a plan in place to fund the 60-day continuation of benefits. "If [Maxicare's] officers and directors think they can walk away from their responsibilities to their Indiana enrollees and expect the Indiana HMO industry to pick up their tab, they need to think again," says McCarty.

"The dominoes just toppled."

According to McCarty, Maxicare Indiana hired an aggressive new team of managers last year, but they could not overcome the financial problems they inherited. In 1989, Maxicare Indiana's parent company — Maxicare Health Plans — filed for bankruptcy to reorganize its operations.

"The dominoes just toppled," says McCarty. "Maxicare is in a negative financial position from which they cannot possibly recover."

Maxicare Health Plans is based in Los Angeles and also runs an HMO in California. However, beginning Aug. 31, 2001, that subsidiary will stop selling its Medicare product, MAX 65plus. The move affects about 7,700 members. The insurer withdrew from San Bernardino and Riverside counties at the end of June 2001.

Maxicare officials say they are cooperating with DOI regulators. "Due to a difficult health care provider and pricing environment in the Indiana market, the company has concluded, after investigating all reasonable alternatives, to cease operations of Maxicare Indiana," says the company's chairman and chief executive officer, Paul Dupree.

No reason to panic, says DOI

Maxicare Indiana's enrollees, including 8,400 state employees and their families, shouldn't panic, according to DOI regulators. Indiana law requires HMOs in receivership to have a plan in place that provides for a 60-day continuation of benefits after the date of seizure. If Maxicare is unable to pay new claims during this period, the state will assess other HMOs in the state to pay for them.

If Maxicare is unable to pay new claims during this period, the state will assess other HMOs in the state to pay for them.

Additionally, Indiana law allows the commissioner to order all insurance companies that participated in Maxicare policyholders' last open enrollment to offer them 30 days in which to enroll for new coverage. According to McCarty, M-Plan — one of the state's largest HMOs — has already stepped forward to say it will begin signing up Maxicare members.

McCarty urges Maxicare Indiana enrollees with questions about their coverage to call Maxicare at (800) 441-3355.

The consumers hardest hit by Maxicare's closing will be the company's own 125 employees, says McCarty. "They are the ones that didn't have other health carriers participating in their last open enrollment," she says.

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