Tuesday, October 14, 2008

More Questions on Legacy Cratering

Why would Shannon's health insurance arm close shop? Data filed with the Texas Department of Insurance showed Legacy's two divisions have $14 million in revenue and nearly $6 million in surplus as of December 2007. Legacy indicated they cover 15,000 people in the region, virtually the same amount as Blue Cross/Blue Shield of Texas.

With Legacy's market share and financial position, why shutter the plans? That size revenue stream and surplus should have some value. Instead of a sale, Shannon pursued a transfer agreement with BC/BS. Here are my questions:

1) What changed in Legacy's financial position to make closure the best option? Did they lose their re-insurance coverage? Legacy reduces their risk of a bad case, an expensive medical condition, by paying another insurance company to cover care over a certain amount, say $50,000. The Wall Street meltdown took down A.I.G. and other insurers are at risk. Re-insurance could be unavailable or suddenly very expensive. The Shannon Trust might not want to go forward bare on the high side of covered cases.

2) How much will roll up to the Shannon Health System? Does Legacy or Shannon get a commission for transferred lives? If Blue Cross virtually doubles their market share on January 1, are they compensating Shannon/Legacy in any form? How much of the $6 million in surplus remains in light of the financial meltdown? How much does the system expect to retain after the wind down? Or is it subsidizing the wrap up of Legacy?

Insurance companies are in trouble. Our local health insurer is closing. Are they related? If not, Shannon's decision should be subject to basic business reporting questions.

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