Insurer Cancels Small Firms’ Health Plans

Declaring that its medical plan faced “extraordinary” losses, one of the nation’s top insurance firms, Washington National Insurance Co. of Evanston, Ill., canceled its health plan this week, affecting dozens of small businesses in California and Arizona, it was learned late Friday.

Firms employing up to about 150 people received the cancellation notices Thursday and Friday, according to Encino insurance broker Roxie Rhoden. “It’s kind of a shock that an insurance company as large as Washington National would do that,” she said. “And it scares the devil out of the companies.”

According to state Department of Insurance records, Washington National, operating in California since 1923, ranks among the nation’s 50 top insurance carriers with $1.7 billion in assets and $1.5 billion in liabilities. A. M. Best Co., an insurance rating firm, gives Washington National an “A-plus,” its highest rating.

“So the employers in this group must be running up tremendous losses,” concluded John Faber, the department’s chief counsel. “It tells you the claims are horrible in terms of their number and severity.”

Faber estimated that the medical plan, which had been in existence only 18 months, covered at least 2,600 adults in California and Arizona, plus their dependents. He speculated that some small employers might face an insurance crisis for a short period “unless their brokers can come up pretty fast” with coverage.

According to a letter sent to employers, Washington National said it faced “extraordinary” losses and that “projected losses for the foreseeable future are extremely large. Given the magnitude of these losses, which would continue throughout 1988, we could not justify the continuance of coverage.”