Maxicare Wins Two Bankruptcy Court Rulings : 33,000 Federal Workers Prevented From Abandoning Membership in Plan

Maxicare Health Plans Inc. said Tuesday that it won two important Bankruptcy Court rulings, including a temporary restraining order barring the federal government from allowing up to 33,000 federal workers to transfer out of Maxicare plans in various states.

U.S. District Judge John Wilson, who is in charge of Maxicare’s Chapter 11 proceedings in Bankruptcy Court in Santa Ana, also overturned a Louisiana state court order placing Maxicare’s Louisiana health maintenance organization under the conservatorship of the state insurance commissioner.

In a separate matter, Maxicare said it reached an agreement to sell the 54,000-member Ohio division of Maxicare Health Plans of the Midwest Inc. to Blue Cross & Blue Shield of Ohio. The company declined to disclose the purchase price.

The proposed sale, which is subject to approval of state regulators, the boards of both companies and the Bankruptcy Court, is scheduled to become effective on May 1. Maxicare said last week that it did not plan to sell the Ohio plan, but Ohio officials sought bidders for the unprofitable plan in an attempt to persuade Maxicare to sell.

The temporary restraining order against the U.S. Office of Personnel Management is a significant victory for Maxicare. If federal workers were able to transfer to competing plans, this might trigger massive withdrawals of Maxicare members. “We will continue to fight any and all attempts to interfere with the conduct of our business,” Maxicare Chairman and Chief Executive Peter J. Ratican said in a statement after the court rulings.

A spokeswoman for the federal agency said OPM’s legal counsel had not seen the order and thus the agency was unsure of its legal options. Last week, OPM said it notified federal workers of Maxicare’s financial problems and gave them the opportunity to transfer to other group health plans.

Maxicare argued that the notification was a violation of a federal court order obtained shortly after its March 16 bankruptcy filing. That order barred hospitals, doctors and other medical-care providers from refusing to treat Maxicare members because of past debts owed by Maxicare.

Xerox Corp. has also given its employees the option to transfer to an in-house group medical plan. But Maxicare spokeswoman Tobi Nyberg said the restraining order applied only to OPM. The company hasn’t yet decided whether to take action against Xerox, she said.

Ratican said the court actions thus far means that “we are being upheld in our stated purpose of continuing to provide quality health care to our members.”

Carolyn Blue Mikell, a Louisiana Department of Insurance spokeswoman, said that although the state lost on the conservatorship issue, it still has pending with the Bankruptcy Court a motion to withdraw the state’s plan from the bankruptcy proceedings. Several states, including Illinois, Indiana and Texas, have similar motions pending. Some argue that Maxicare plans in their states are insurance companies and and thus, under federal law, are ineligible to file for Chapter 11 protection.

Mikell also said the Bankruptcy Court ordered Maxicare to keep a $300,000 average bank balance in Louisiana and to post a $100,000 bond with the insurance department on May 1.