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State takes over State insurance regulators have shut down Hawaii Healthcare Alliance and seized its remaining assets following a confidential three-week investigation into the operations and financial structure of the fast-growing health plan.
Hawaii Healthcare
Alliance
Insurance regulators find
the health plan unlicensed,
short on 'capitalization
and reserve requirements'By Ian Y. Lind
Star-BulletinCircuit Court Judge Kevin S.C. Chang approved an order during a secret court session Friday afternoon allowing regulators to seize assets of Alliance, according to Ron Snyder, a Utah-based attorney representing the company.
The move was not publicly disclosed until yesterday, after Chang approved a limited release of information.
"We're legally in control," Insurance Commissioner Wayne Metcalf said yesterday. "They cannot renew existing policies, can't write new business and can't pay bills without our authorization."
The Star-Bulletin reported last week that Alliance was under scrutiny by state and federal regulators.
Metcalf said the department acted after investigators determined that Alliance was an unlicensed insurer and "did not meet the required minimum capitalization and reserve requirements to conduct business as an insurance company in the state of Hawaii."
According to the state Insurance Division, people who bought health insurance from Hawaii Healthcare Alliance may be eligible to transfer their policies to the following health maintenance organizations and mutual benefit societies: HOPE FOR POLICYHOLDERS
HEALTH MAINTENANCE ORGANIZATIONS
Health Plan Hawaii, 948-6330
MUTUAL BENEFIT SOCIETIES
"Hawaii Healthcare Alliance is insolvent as a matter of law," Metcalf said. "We need to take a close look at their affairs to determine whether rehabilitation of the company is possible."
State accused of duplicity
Alliance began selling health coverage in February, and covered about 3,000 individuals when it was shut down. The plan was being marketed to individuals, consultants, small business owners and others not covered by employers' group plans required by Hawaii's Prepaid Health Care Act.Metcalf said Alliance members may be entitled to obtain individual health coverage from other insurance carriers under terms of the Health Insurance Portability and Accountability Act of 1996.
"If they can show they have had continuous coverage for 18 months through HHA or a predecessor, then they can obtain a certificate of coverage and apply to other carriers," Metcalf said.
Alliance members will also be eligible to participate in the SAI Plus Healthplan, according to a news release distributed by Darren Larson, Alliance president and owner of Design Benefits Insurance Services.
Larson said the SAI plan is offered in 11 states and is regulated by the U.S. Department of Labor.
Snyder called the state's move to close down the Alliance health plan "duplicitous," saying it came during negotiations over possible solutions to regulators' concerns.
"We didn't even have time to get an attorney," Snyder said in a telephone interview. "They filed in court at 4:30 p.m. Friday, without our having any knowledge, and served us after 5 p.m. that they wanted to seize the assets."
"We had made several offers to the state of ways that this could be brought into compliance quickly and easily," Snyder said. "Although the commissioner listened, he was obviously doing other things at the same time. They were pretending like we were negotiating, but actually he (Metcalf) was just out to get some publicity."
Details of the company's financial condition and the terms of the state's takeover remain under seal with the court. Metcalf said it could be a month or longer before the court's confidential order is lifted.
According to Metcalf, the latest investigation began on Oct. 11, when the Insurance Division was notified that the Alliance plan did not fall under the jurisdiction of the U.S. Department of Labor and was therefore not exempt from state regulation.
Allegedly legally insolvent
The investigation went into high gear when Alliance officials were found to have made false or misleading claims to regulators.In written materials, Alliance said its funds were protected by the "Hawaii HealthCare Alliance Medical Benefit Trust" administered by Arrowhead Trust Inc., a California trust company, a claim repeated to the Star-Bulletin in a recent series of interviews.
But regulators quickly determined that the trust relationship did not exist, Metcalf said.
On Oct. 20, following that determination, Metcalf issued an order of supervision, essentially freezing Alliance assets while negotiations continued.
However, additional documents turned over by the company during a meeting last Thursday convinced Metcalf that Alliance was legally insolvent, leading to the immediate shutdown of its operations.
Snyder said the state has overreacted.
"We did have a Paine Webber trust account," Snyder said. "Although it wasn't the one we originally announced, they are aware of this. They know the money has been in trust."
Financial structure at issue
Regulators have also been concerned about Alliance's financial structure.The Hawaii Healthcare Alliance is registered with the state as a nonprofit organization but has only one or two employees and no separate physical existence.
Larson is the group's president, and his mother, Lydia Graham, serves as secretary and treasurer, state business registration records show.
Alliance vice president Michael Brill is an insurance agent who does business with Larson, state records show.
All of Alliance's business operations were conducted through two for-profit companies, both linked to Larson, records show. Design Benefits Insurance Services Inc., which served as the sole marketing and sales agent for the Alliance health plan, is owned by Larson and his wife, Linda.
Larson is also a director of a second company, HHA Administrators Inc., which handles the processing of medical claims, records show.