KPS's problems go way back

When I ran into Mike Merwick the other day, it had been years since I’d seen the man who was second of the seven persons who managed Kitsap Physicians Service since its inception in 1946.

That was back in its heyday, 1967 to 1980. No one dreamed then that the day would come when KPS was in such financial straits it would be sold to another company by order of the state insurance commissioner with court approval.

That blow came Aug. 19, with sale to Group Health Cooperative to take place within 31 days.

Merwick, however, thinks there is a way out, unless there is more we haven’t been told, including the reasons why KPS cannot survive on its own as Insurance Commissioner Mike Kreidler claims, but has not produced evidence to back up his opinion.

“There should be an appeal of the decision and then there should be a total and complete open forum with the principals involved to discuss specific written financial data (with respect to) the past, present and projections,” he said. "There should be a complete, written analysis of the comparison of each of the four major health plans in the state to show differences and similarities, to show the logical match that best serves the public. The logic of the insurance commissioner is subjective and not written law, so KPS should be given the right to prove that it can succeed.”

If there is to be a merger of KPS with one of the three other major health plans in the state — Group Health, Premera Blue Cross or Regence Blue Shield —it should be with Regence, not Group Health, Merwick said.

“Regence is like KPS in operating methods, structure, history and fee for service,” he said. “Group Health is the opposite of KPS in philosophy, structure and operating methods. Brokers on the street believe that groups will move — change to Regence or Premera — because of the vast difference in philosophy involved. Some believe that Group Health will drag KPS down with it.”

So who is this Mike Merwick, besides a former KPS CEO? Well, currently he is an independent agent in health and life insurance who lives in Seattle and also writes books for businesses explaining their product. He’s been the president of the State Health Plan Managers Association and chair of the State Plan Managers Association, Alternate Delivery Systems and a national committee on HMOs.

There are those who believe KPS’s troubles began back in the mid-1990s, when Deborah Senn was insurance commissioner and mandated that companies must accept all individuals who ask for insurance regardless of their health.

That opened the door for the very sick, such as cancer or AIDS patients, to sign up to pay a few hundred in premiums for thousands of dollars in services. Women could sign up when they got pregnant and get back off after the baby was born.

Insurers left the state in droves. Of the 50-plus companies here then, only four remain, said Merwick. KPS had to stay because it was domiciled here but was paying out more than it was taking in.

It also had to administer three unprofitable state-run health plans that put it in the hole because KPS had “seriously underbid” the contracts, according to the state.

By 1999, KPS had lost $15 million over three years and did not have the $3 million in reserves required. Its physician members offered to give up $2.6 million in reimbursements to rebuild the reserves and state-run plans were dropped, but it was not enough. The state insurance commissioner took over KPS in August of that year. The top four KPS officials were fired, and there began a procession of proposals to revive KPS.

Group Health’s offer of $19 million in cash met capitalization requirements and it has promised to stay four years. But the locals, physicians and officials fear that then it may pack up and move its headquarters elsewhere. Is it too late to squelch the deal? Looks like it to me, but what did Churchill say? “Never give in. Never give in. Never, never, never, never, in nothing great or small, large or pretty, never give in except to convictions of honor and good sense.”


Adele Ferguson can be reached at P.O. Box 69, Hansville, WA, 98340.

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