Premera shutting down Arizona subsidiary

Premera Blue Cross is pulling out of Arizona. (See correction)

Premera assured its members and its 8,000 network physicians that it will pay all outstanding claims involving its 5-year-old LifeWise Health Plan of Arizona subsidiary. LifeWise, which offers individual and group plans, will continue to operate subsidiaries in Washington and Oregon after the Arizona business shuts down over the next several months.

Jodi Coffey, a Premera spokeswoman, said LifeWise of Arizona simply didn't reach its membership goals.

The plan said it needed 50,000 members to be profitable in Arizona, a figure it expected to reach by 2011. Instead, membership fell by nearly 50%, from 30,000 in 2007 to about 16,000 in 2008. Coffey said the drop was due to significant rate increases in 2008, a result of a transition to basing prices on the plan's experience rating rather than a community rating. (See correction)

The drop also coincided with a deal reached with Washington regulators that limited the amount of money Premera could use to subsidize the unprofitable business, though Coffey said this was not a factor in the decision to pull out.

In August 2007, Washington state Insurance Commissioner Mike Kreidler ordered Premera to stop writing new policies in Arizona until the company provided a realistic plan for ending subsidies scheduled to reach $49 million. He said the subsidies hurt Washington consumers because their money was being sent out of state.

The commissioner lifted the order after nine days and reached an agreement with the company that limited its subsidy to $12 million annually, said Stephanie Marquis, spokeswoman for the Office of the Insurance Commissioner.

LifeWise of Arizona has arranged for its members to enroll with Blue Cross Blue Shield of Arizona if they wish.

The Blues and UnitedHealthcare each hold more than 30% of the market share in PPO and HMO plans, according to the AMA's most recent survey of competition in health insurance markets, released in January.