State setting
rules for claims against
failed insurance firm

Pacific Group Medical Association,
seized in 1997, lacks the funds to
pay debts estimated
at $27 million

By Ian Y. Lind
Star-Bulletin

Insurance Commissioner Wayne Metcalf is seeking court approval of a procedure for registering thousands of claims against Pacific Group Medical Association, the health insurance firm that collapsed and was seized by state regulators in 1997.

But Metcalf said that little money is available to pay off PGMA's debts, now estimated at more than $27 million, and that any future cash distributions depend on the success of lawsuits pending against the company's former officers, accountants and attorneys.

"At this time, the PGMA Liquidating Trust does not have enough money to pay all claims," according to one of three letters Metcalf proposes to send to the firm's creditors.

"Therefore, I cannot give you any assurances about when I will make distributions, or how much (if anything) I will be able to distribute," the letters state.

Legal fees and other expenses have drained PGMA's remaining assets, court records show. At the end of 1998, the PGMA Liquidating Trust had paid $860,000 in legal fees, and an additional $170,000 in fees to investigator Thomas Hayes, who has been piecing together the insurer's financial structure.

A balance of just $1.6 million remained in the PGMA account at that time, records show.

Metcalf has identified more than 10,000 individuals and businesses with claims against the nonprofit insurer, court records show.

According to Metcalf's proposal, notices would be mailed to individuals and entities with known claims, who would then have 60 days to agree with the amount estimated by Metcalf's office or submit documents to substantiate a higher claim.

Claims not submitted within that time would be disallowed and could not be submitted later.

A hearing on Metcalf's proposal is scheduled tomorrow before Circuit Judge Gail C. Nakatani.

Metcalf cautioned that the proposed notices, as well as the overall claims procedure, are subject to court review and could change if objections or suggestions are made by others.

Some objections have already been filed on behalf of the Voluntary Employee Benefit Association, which contracted with PGMA to provide health insurance for thousands of state employees belonging to the Hawaii Government Employees Association, the state's largest public worker union.

Paul Schraff, attorney for the Voluntary Employee Benefit Association, said individual union members should not be asked to file claims because they have no way of knowing what they are entitled to.

"If somebody went to the doctor and got services, the patient paid part and PGMA was supposed to pay the balance. The member only has a claim if the doctor doesn't get paid, but we don't know yet whether the doctor will get paid," Schraff said.

Schraff said to avoid confusion and duplicate claims, doctors and other providers should file their claims first, and then the court should determine how unpaid claims will be handled.

The association is pushing to protect its members from liability for medical bills left unpaid by PGMA's collapse.

"We want our members protected, that's our whole concern. We don't want them to be targets. We don't want them to get sued if doctors aren't paid by PGMA," Schraff said.

About 12,000 members of HGEA and the United Public Workers were covered by PGMA health plans at the end of 1996, just months before the company failed.