Benicorp cleanup praised: Customers, employees ease through liquidation

When cash ran dry last summer at Indianapolis-based Benicorp Insurance Co., it could have created a major mess.

But 10 months later, Indiana insurance regulators have kept all of Benicorp’s customers covered by health insurance and given its employees a soft landing as they make the transition to new jobs. The last of a backlog of claims has been paid off.

“No family in Indiana will have an uncovered claim,” said Jim Atterholt, the Indiana commissioner of insurance. “That’s a tremendous success.”

Insurance officials in other states say liquidations of health insurers-even small ones like Benicorp-often take much longer, don’t keep as many people from the company employed, and lead to higher tabs for the state guaranty funds that cover customers’ medical claims when their insurer is liquidated.

“It could’ve gone on for years,” said Louis Roggensack, chairman of the board of the Nevada Life & Health Insurance Guaranty Association, which was one of the three top states where Benicorp operated.

There are many reasons it didn’t. Chief among them were an early start by Indiana regulators to tackle the problem and the commitment of Minnesota-based United-Healthcare to guarantee coverage to any of the 3,200 employers that were Benicorp customers.

Atterholt and his special deputy on Benicorp, Randy Lamberjack, said the liquidation of Benicorp drew praise from members of the Virginia-based National Organization of Life & Health Guaranty Associations. It encompasses state groups that collect fees from insurers to fund cleanups of failed carriers.

But the laudatory members of the national organization cited by Atterholt and Lamberjack are all members of the task force that oversaw the liquidation of Benicorp.

“There’s very good characteristics here,” said Mark Femal, a project manager at the Wisconsin accounting firm of Strohm Ballweg LLP, who also served on the Benicorp task force.

Femal said by year’s end, the guaranty associations would prepare a “lessons learned” memo about the Benicorp case. If there are future insolvency cases similar to Benicorp’s in size and scope, he said, the Benicorp cleanup process “could be a model.”

The thing the guaranty associations like most is that by signing up even sick customers with UnitedHealthcare-customers who most likely would not have received coverage from other insurers-it saved the states from paying as many claims for those customers as they otherwise would have.

Guaranty associations, which are funded with payments from insurers doing business in each state, provide temporary insurance coverage to customers whose insurance company goes insolvent.

Lamberjack said getting an early start on providing new coverage for Benicorp’s customers saved at least $5 million for state guaranty funds that pay claims when an insurance company is liquidated. He also saved money by negotiating discounts on big-dollar claims with health care providers.

Also, Lamberjack managed to keep most Benicorp employees-and even give them a raise. He canceled a contract with an outside customer-service and claimsprocessing provider and, instead, had Benicorp employees cross-train one another to do that work. UnitedHealthcare also hired 11 former Benicorp workers.

Benicorp Sales Manager Angela Smith was looking for a new job when Lamberjack asked her to stay. After she and others were trained how to process claims, Smith became manager of that department, working through a backlog that at its peak was a year long.

“I was actively pursuing employment and networking and all that,” said Smith, 47, a single mother. “I absolutely changed my mind.”

Most of Benicorp’s 100 employees stayed on initially, then left gradually as new jobs became available. About 10 were laid off but were given about eight weeks’ notice. Twenty employees are still working at Benicorp’s offices in Park 100.

Atterholt took control of Benicorp Aug. 9 after a Marion County judge declared the company insolvent. Atterholt began liquidating the company’s assets in October.

Benicorp was a small insurer for small companies. When Atterholt stepped in, it provided health benefits to 52,000 people, mostly in Indiana, Nebraska, Nevada, Missouri and Georgia.

Benicorp was founded in Indianapolis in 1987. Illinois-based McKee Heritage Holdings Corp. purchased it in 2005 for $32 million.

Benicorp began underpricing its policies, which led to a cash crunch. It lost $9 million in 2006, and McKee Heritage pumped $6 million into the company in early 2007. But it wasn’t enough.

On July 3, Benicorp President Kevin Hart sent a memo to insurance agents, saying Benicorp would halt sales of new policies until it fixed computer systems that were hampering the processing of claims.

Even by that time, some insurance brokers were working to move clients to new carriers. But that’s easier said than done.

UnitedHealthcare made it easier by guaranteeing coverage-even if a small employer had relatively sick people covered under its plan. UnitedHealthcare did not guarantee the same price as Benicorp had been offering. But it still had to be competitive, said Dan Krajnovich, the company’s CEO for Indiana and Kentucky.

“We were effectively competing in the marketplace with everybody else for this business,” Krajnovich said.

More than half of Benicorp’s employer groups chose to take UnitedHealthcare’s offer. Together, they added more than 27,000 people nationally to the company’s customer rolls.

“We looked at the situation as one where, if we could bring the majority of the business onto UnitedHealthcare’s paper, then we stood a better risk of spreading that risk out,” Krajnovich said.

Two other insurers-Indianapolis-based Anthem Blue Cross and Blue Shield and New York-based Assurant-also offered to take on Benicorp customers, Atterholt said. But UnitedHealthcare was the only one that had operations in all the states in which Benicorp had customers.

When UnitedHealthcare was named as the “white knight,” said Roggensack, the chairman of Nevada’s guarantee association, it ended many of his fears.

“As soon as UnitedHealthcare stepped in and took over the policyholders, then I felt it was going to be fairly quick,” he said.