Monday, October 13, 2008

Shannon Shutters Legacy Health Insurance

As the American economy deleverages, Shannon Health System decomposes. Integration was the buzz word of the mid 1990's. Shannon Medical Center grew into a system with the addition of the Shannon Clinic and Legacy Health Insurance. In a year's time, both corporate entities will have been wrapped up.

The Shannon Clinic was denuded to minimize physician competition with the hospital. Legacy, the insurance arm intended to steer patients to Shannon, will close January 1. The Standard Times had this on the planned shuttering:

Shannon said changing market conditions have made it difficult for a small insurance company to survive. The trend in the insurance industry is to consolidate operations to create economies of scale, according to the news release.

Changing market conditions could apply to Legacy's investments. Do they hold toxic assets, requiring write down due to mark-to-market accounting? If so, in what amounts? While the Shannon Trust has deep pockets and may be willing to fund a short term reprieve, they aren't the Fed or the U.S. Treasury.

HCA, the prior owner of Community Hospital, has $1.6 billion of level 2 or 3 investments in their professional liability insurance subsidiary. Of the total, $652 million are in untradeable auction rate securities, based on student loans. HCA has deeper pocket, private equity parents, but could still show up with their hand out at Hank Paulson's TARP cash window.

Let's say Legacy avoided the meltdown of junk financial instruments. Less than a year ago, the Texas Department of Insurance showed Legacy's two divisions with $14 million in premiums and a $5.8 million surplus. Those funds couldn't disappear overnight, a la Lehman Brothers or Bear Stearns, could they?

Consolidation in the insurance industry usually involves a sale or merger, not outright closure. Surely someone would be willing to pay something for 15,000 covered lives, a $14 million annual revenue stream and nearly $6 million in surplus?

More information could come from the state. If not, TDI has a webpage addressing what to do "if my insurance company fails". Come January 1, Legacy will have failed. The question remains, why?

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