Policyholders Hear Bad News in Bankruptcy

The collapse of a Huntington Beach health insurance carrier has left more than 200 Southern Californians owing thousands of dollars in medical bills, driving more than 50 policyholders into court Tuesday to demand their money.

But the crowd learned that there is little chance of recovering much money from Employers Trust Fund for Building Industries, which filed for liquidation in September under Chapter 7 of the federal bankruptcy code.

During the first creditors meeting in U.S. Bankruptcy Court in Santa Ana, policyholders were told that the company has just $34,000 in cash, $500,000 worth of potential assets--and up to $6.6 million worth of debt.

Robert P. Mosier, a Costa Mesa trustee appointed to attempt the recovery of all assets and disburse them to creditors, said the process will take at least a year and possibly much longer.

In the meantime, Mosier said, the policyholders--most of them employees of small businesses--are being held responsible by their doctors and hospitals for medical bills. Many of the bills are in six figures, with one man owing up to $750,000.

“You’re talking people who are not wealthy individuals, who may be left high and dry,” Mosier said.

Robert Scott, 43, a Huntington Beach coin shop owner, took out a policy with Builders Employers four years ago. He must pay off a $100,000 hospital bill because of the bankruptcy, he said.

“It’s going to ruin me,” Scott said. “I had the doctor call me today and ask for $7,000. I guess I’m going to have to pay as much as I can per month.” Scott said he and other claimants are trying to band together to consider legal recourse. But Mosier said there will be little they can do to get their money back.

“You can’t squeeze blood out of a turnip,” Mosier said.

Officials of the defunct trust, which was started in 1983, declined through their attorney to comment.

Mosier said the firm collapsed because its income in medical premiums was not enough to offset the amount in claims.

Todd M. Bailey, a Los Angeles attorney representing the trust in the bankruptcy proceedings, said the debt figure may be inflated because of duplications in the company’s accounting.

Bailey said a more likely figure is $2 million.

Mosier will tally the exact number of claims.

The Employers Trust situation is an increasingly common one in the health insurance industry, particularly among the smaller carriers, said Lee Grover, principal for Mercer Meidinger Hansen Inc., a consulting firm in Orange. Grover said small companies are especially vulnerable to rising health costs and, like Employers Trust, have trouble making premiums offset claims.

“In the last couple of years, a lot have come and gone,” Grover said.

The small trust funds have become popular, nonetheless, among small businesses that either cannot afford or will not be accepted by larger, more established health insurance carriers, Grover said.

Employers Trust, for instance, catered to businesses with less than 50 employees, the trust’s attorneys said.

To find a healthy trust, Grover suggested that prospective clients investigate the company’s financial portfolio and examine its rate history.

If there is a recent pattern of steep rate increases, Grover said, that indicates that the company is in trouble.

EMPLOYER’S TRUST AT A GLANCE

BALANCE SHEET: The company has $34,000 in cash, $500,000 worth of assets and debts estimated at $2 million to $6.6 million.

LIQUIDATION: The process of recovering and distributing the firm’s assets could take up to a year.

CREDITORS: Most of the claimants seeking to recover funds from Employer’s Trust work for firms with fewer than 50 employees.

WARNING SIGNS: Prospective clients looking for a healthy trust should examine the company’s rate history. A recent pattern of steep increases is a sign of trouble.