Seven indemnity health insurers went bankrupt in 1991, for instance, but no HMOs failed. Had the NAIC guidelines been in force in all 50 states, state regulators would have been required to seize 18 HMOs and put 19 more under regulatory control. The remaining 63 would have been required to submit a plan to correct financial problems. So far, it's been smaller health plans that bite the dust. Some get into trouble by focusing on one line of business.
Problems also are more likely where managed care penetration is low.
Community Health Plans of Kansas and Horizon Health, a subsidiary of the Kansas Medical Association, failed this year. Many smaller plans are undercapitalized start-ups with untested management. That's as good a prescription for failure as any when they compete against big players, which can afford to lose tens of millions of dollars annually. Insurance cycle HMOs' profit squeeze is central to the increase in insolvencies and state-level regulatory response. Ginsburg and others see the last five years as the valley in the underwriting cycle.