Lifeguard HMO to Shut Down by End of Year

Lifeguard Inc. of San Jose, one of a few remaining regional health maintenance organizations in the state, will shut down by year-end, California HMO regulators said Tuesday.

State officials earlier this month took control of Lifeguard, which has 168,000 members, after the 25-year-old health plan failed to meet financial requirements.

Lifeguard’s demise, which analysts attributed partly to huge losses from its California Public Employees’ Retirement System account, will continue the consolidation in the HMO industry.

By year’s end, California will have 17 HMOs writing commercial policies, down from 21 in March, according to Cattaneo & Stroud Inc., a health-care consultant in Burlingame, Calif.

For consumers, that translates to fewer choices, and signals further decline in HMO membership. By Cattaneo’s surveys, California’s HMO enrollment shrank by 640,000 between March 2001 and March this year, with most of the major HMOs, excluding Kaiser Permanente, reporting drops.

Many HMO dropouts apparently are switching to less-restrictive preferred provider organizations, or PPOs.

Lifeguard’s members are expected to shift to other health plans offered by employers, which include IBM Corp., Hewlett-Packard Co. and the city of San Jose. Lifeguard was well regarded by consumers and doctors but had neither negotiating power nor the resources to compete.

When Lifeguard’s attempt to merge with Blue Shield broke down this summer, Lifeguard had nowhere to go, said Rick Shaw, an assistant vice president at the rating firm A.M. Best Co. He said a major factor behind Lifeguard’s collapse was significant losses from thousands of CalPERS members, whose medical claims far exceeded Lifeguard’s premiums.

Lifeguard lost $24 million last year. The HMO dropped CalPERS this year.