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Judge declares
insurer insolvent

It clears the way for the
liquidation of Hawaii Healthcare
Alliance assets

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By Ian Lind
Star-Bulletin

A state judge has determined that the Hawaii Healthcare Alliance is legally insolvent, paving the way for the liquidation of its assets to pay outstanding claims.

The court order by Circuit Court Judge Sabrina McKenna was issued earlier this month in confidential proceedings, and a written order is expected to be made public soon, Insurance Commissioner Wayne Metcalf told the Star-Bulletin.

Metcalf's office ordered the company to halt operations in October after determining that the company was not authorized to operate as an insurance company and did not meet state licensing requirements.

In a separate administrative action, the state last month suspended the insurance licenses of company president Darren Larson pending a hearing on permanent revocation. Larson's insurance agency, Design Benefits Insurance Services, was the exclusive sales agent for company plans.

According to Larson's attorneys, the state never raised objections about the company or its business plan until moving to shut it down. Also, they have said that the company met conditions for the type of business it was engaged in.

Hawaii Healthcare Alliance, which targeted self-employed professionals and small business owners not covered by the state Prepaid Health Care Act, provided health coverage for about 3,000 individuals when it was shut down.

The company had $81,927.60 in assets when regulators moved in at the end of October, state records show. Metcalf said outstanding claims exceeded that amount by at least $200,000 as of Nov. 15, and that amount is believed to be higher today.

The state is also investigating complaints that some medical claims were improperly denied by HHA based on an exclusion for pre-existing conditions.

"Whether or not the denials were all proper is something we are going to have to look at," Metcalf said. "There is some evidence that indicates the denials were not all well grounded."

Records show there were at least five complaints filed against the company between May and September by two members, two health care providers and a member of the public, including allegations of improper denial of claims and unauthorized withdrawals of premium payments by direct electronic debiting of a personal checking account. Only one of those complaints had been resolved by the time the company was shut down.

Although the court proceedings have been confidential, some details of the charges against HHA have emerged in Larson's license revocation.

Insurance Division attorneys allege:

Company ads as early as November 1999 said the plan's coverage was provided by Hartford Life Insurance Co., but neither Larson nor his company was authorized to sell insurance on behalf of Hartford.

Hawaii Healthcare Alliance later said its plans were backed by a Medical Benefits Trust administered by the California-based Arrowhead Trust Inc., but no such trust was ever established.

After being ordered to immediately cease and desist from issuing any new insurance policies or processing any renewals, Larson and Design Benefits solicited the alliance's members to sign up for a replacement plan through another company not authorized to do business in Hawaii, and which is now the target of an investigation by federal authorities.

In a letter to clients immediately following the state's seizure of the company, Larson claimed that there was "more than enough money" to pay all outstanding claims, which further misrepresented the company's actual financial condition.