W. Virginia Policyholders Dragged Down in Collapse of Health Insurer

When West Virginia’s largest health insurer, Blue Cross and Blue Shield, went under in October, 1990, it dragged a lot of hard-working people down with it.

Some of them work at Elkins Builders Supply Co., including Robert Baer Jr., whose son was born prematurely and needed $23,000 in life-sustaining care to help his tiny, weakened lungs push oxygen through his body.

Five months after Jonathan’s birth, Blue Cross and Blue Shield informed Baer that it would not pay the hospital debt. Nor would it pay the claims of an additional 51,188 policyholders whom it left with $42 million in unpaid medical bills.

Today, nearly two years later, Baer and some of his co-workers still are fighting off the bill collectors, afraid they may be financially disabled forever.

Although West Virginia’s is the only such plan to fail, Blue Cross and Blue Shield programs in several other states are experiencing financial and managerial problems.

After the West Virginia plan succumbed, many patients hoped the hospitals and doctors would absorb the loss. Some did, while others have tried aggressively to collect their money. In September, the hospital that saved Jonathan’s life demanded $50 a month from Baer.

“I begged for mercy, said all I could pay was $20,” said Baer, 28, who makes about $20,000 a year working three jobs in Elkins, a town of 8,000 located 150 miles west of Washington, in steep-ridged country where the coal and timber industries still dominate.

Baer began writing $20 checks and thought his immediate worries were over. Last month, however, when he co-signed on a line of credit for a relative who wanted to buy a $500 recliner, the store rejected his signature.

“That’s when I knew my credit was involved. They wouldn’t even let me co-sign for a $500 chair,” he said, astonished and embarrassed. “You know things are over then. No bank is going to touch me with a 30-foot pole.”

The liquidation of the West Virginia plan was the first in the history of the 60-year-old Blue Cross and Blue Shield network, the nation’s largest health insurer, and its failure has affected many of the state’s working poor.

An Ohio Blue Cross and Blue Shield plan stepped in almost immediately after the collapse and covered most people, though premiums have increased an average of 25%. The Ohio plan did not cover past claims.

Because of a quirk in many state laws, Blue Cross and Blue Shield policyholders in fewer than 20 states are protected by a financial safety net--called state guarantee funds--that covers unpaid claims of private insurance companies that become insolvent. West Virginia had no such fund two years ago, although it has one now.

The history of West Virginia’s demise is under investigation by a Senate subcommittee and has attracted national interest recently because of reports that other plans in the District of Columbia, Maryland, Massachusetts, New York, New Jersey, Florida and elsewhere are experiencing financial or managerial problems.

Fourteen plans are being closely monitored by the Chicago-based Blue Cross and Blue Shield Assn., which licenses the plans. Thirteen of them are financially sound, according to the association. A New York plan is in financial trouble, and a resolution to its problem is expected soon.

The “Blues,” as they are known, are 73 separate plans covering 94 million people. They make up a central part of the nation’s medical insurance system, and their troubles are in part a reflection of the system’s troubles.

Formed in the 1930s, the nonprofit Blues began as an insurer that based policyholders’ premiums on the risks of entire communities of subscribers. Eventually, commercial companies were able to lure the lowest risks--healthy, young policyholders--by offering only them lower premiums. The Blues were left increasingly with the higher-risk, higher-cost policyholders--at the very time medical costs were skyrocketing.

Investigators for the Senate Governmental Affairs permanent investigations subcommittee believe serious mismanagement contributed to the West Virginia plan’s downfall. The plan, staff members said at a subcommittee hearing last week, was insolvent as early as 1987.

As debts rose to $31 million by 1989, its top officials took big pay raises, gave contracts to other companies they owned, continued to finance failing for-profit spinoff companies and spent $250,000 to resolve a lawsuit by the chief executive’s former girlfriend.

Meanwhile, the premiums for Elkins Builders Supply’s 31 insured workers doubled in two years. By the time the plan was declared insolvent in October, 1990, the company’s monthly premium was $10,959.38.

A state liquidator is trying to recover the failed plan’s assets--mainly property, money owed it by other companies and the proceeds of lawsuits--in the hope of eventually reimbursing policyholders, doctors and hospitals.

In the meantime, some doctors’ offices have stopped treating people who carried Blue Cross and Blue Shield coverage. Some, such as F. T. Sporck’s group practice in Charleston, which has $114,265.53 in unpaid claims, have insisted patients needing non-emergency surgery pay 50% of all costs before the operation. “We’re just trying to cut our losses,” Sporck said.

Betty Cordial, the state liquidator, said her office expects to begin paying policyholders 59 cents on every dollar of debt beginning next year and hospitals and doctors soon afterward.

That won’t help Baer’s co-worker Harry Jefferies, who is stuck with $3,000 in bills for the 12 days his son spent in intensive care after his premature birth.

“We don’t know what to do,” said Brenda Jefferies, who gets calls every day from collection agencies. “It’s ruined our credit; we can’t even buy or trade vehicles.