Bert Caldwell: Ailing health insurer is bad medicine for Washington

Life has been hard for LifeWise Health Plan of Arizona.

Business has not progressed as well as expected in 2003, when LifeWise asked Arizona regulators for permission to start selling group and individual health insurance plans in the state. Losses, expected as a matter of course for new insurers, have exceeded projections.

The red ink last month prompted Washington Insurance Commissioner Mike Kreidler to order LifeWise to stop selling policies. LifeWise, he said, spends $1.58 for every $1 in premiums collected.

You read right. Washington insurance commissioner.

The call was Kreidler’s because LifeWise is a subsidiary of Premera Blue Cross. Although LifeWise does not sell insurance in Washington, the company is domesticated, or based, in Mountlake Terrace, not Scottsdale. If LifeWise finances were to go south, some of the fault would be Kreidler’s.

However, LifeWise provided written and verbal assurances that financial problems were being addressed, and Kreidler lifted his order nine days after it was issued.

But he may not have regulatory authority over LifeWise much longer.

LifeWise has asked Kreidler and his Arizona counterpart to approve transfer of the company base to Scottsdale. A hearing on the matter will be held this fall, probably in October. According to Washington law, LifeWise will have to convince an administrative law judge that a move is in the best interests of Washington residents.

The benefit, or harm, would be direct, and indirect. Direct, in that LifeWise claims are processed in Spokane. Premera, with Washington Gov. Chris Gregoire among the dignitaries, dedicated a $12 million expansion of its East Sprague Avenue offices in June. The state contributed $700,000 toward construction of the facility, which also processes Premera claims. LifeWise pays some of the overhead costs.

Indirect, in that Premera has sunk $49 million into LifeWise startup costs.

Those expenditures upset critics who have attacked Premera and other Washington health insurers. They claim the companies have amassed reserves far in excess of those needed to cover potential claims. As of the end of June, Premera had cached more than $746 million, and the total for all insurers in the state exceeds $2 billion.

The critics want some of that money refunded to policyholders.

Premera, a nonprofit Blue Cross affiliate, says the reserves are justified. Spokesman Scott Forslund adds that the financial support provided LifeWise, a non-Blue for-profit, should be regarded like any other investment Premera makes. LifeWise, he says, should break even by 2010 and break into the black by 2012.

LifeWise has filed rate increases for its individual and group policies Forslund says will bring claims costs to around 93 percent of premiums by the end of the year. As a startup, the company priced its policies competitively in order to build market share, he says.

“Competitively” might be an understatement. Kreidler’s office says premiums are, in some cases, a fraction of those charged by other Arizona health insurers. Broker commissions are exceptionally high.

Forslund says LifeWise rates for individual policies are mid-range compared with those of its competitors. Group rates are marginally higher. Commissions appear high because of the relatively few – 32,000 – policyholders LifeWise has signed up to date, he says.

Still, the apparent spreads on rates and commissions, coupled with the losses, piqued Kreidler and Steve Ferguson, chief financial examiner for the Arizona Department of Insurance.

“They’ve had to learn some things,” says Ferguson, noting that the Arizona insurance market is more competitive than Washington’s. Though concerned, he says the rate increases should solidify LifeWise finances.

“We intend to monitor LifeWise as closely as Washington,” Ferguson says.

As long as Washington does any monitoring at all.

LifeWise will have an interesting case to make as it tries to pull up stakes. How does a so-far unprofitable insurer show a move would be in the long-term best interests of a Washington public that, as Premera subscribers, has propped up LifeWise operations?

Is this an investment, or a mirage?