State Will Rescue HMO Without Harvard Funds

State officials yesterday unveiled a plan to bring Harvard Pilgrim Health Care out of its financial trouble without the involvement of Harvard University.

Harvard Pilgrim, the largest health maintenance organization (HMO) in Massachusetts and the insurer of 1.1 million state citizens, was brought under the control of the state on Jan. 4, after it sustained nearly $200 million in losses in 1999.

The plan was announced at a news conference held yesterday afternoon in the state capitol by Gov. A. Paul Cellucci, Attorney General Thomas F. Reilly, and Insurance Commissioner Linda L. Ruthardt.

It calls for no outside investments or infusions of cash in the HMO. Instead Harvard Pilgrim will follow the business plan it has used while under state control.

"This [plan] takes Harvard Pilgrim Health off the critical list," Cellucci said.

The state had requested Harvard's financial help in bailing out the HMO. Various other parties, including area hospitals, large employers and for-profit insurers, had also been tapped for money. But, Reilly said yesterday, in the end the state rejected all of these options.

Despite the name similarity between Harvard Pilgrim and the University--currently the basis of a lawsuit between the state and the University--the two parties are not directly affiliated.

However, the University does have an interest in the health of the HMO. A large number of University employees and their dependents are insured by Harvard Pilgrim, which is one of the health insurance plans the University offers.

Additionally, teaching hospitals affiliated with the Harvard Medical School serve many patients insured by Harvard Pilgrim, and faced significant financial uncertainty with the HMO's precarious financial situation.

The state had previously proposed, among other options, that the University loan money to Harvard Pilgrim or that the University serve as a financial guarantor to outside investors in the HMO, according to Harvard Vice President for Finance Elizabeth C. "Beppie" Huidekoper.

But, according to several University officials, the University was unwilling to commit money to Harvard Pilgrim unless the state agreed to provide financial guarantees to the University.

Additionally, according to Harvard spokesperson Joe Wrinn, the University was also never willing to become a "principal investor" in the plan and was only willing to invest if other large employers were included.

Over the last two months, Reilly has maintained that the state is unwilling put state taxpayers at risk by guaranteeing loans in Harvard Pilgrim. He repeated this position yesterday.

"Harvard University had absolute conditions for any type of investment--they demanded a complete state guarantee of any money that they put it," Reilly said. "We were not going to do that. There is no need to make a bad deal and we didn't."

While Harvard Pilgrim has been working under the current business plan, it has been able to build up $200 million in cash reserves and pay off another $200 million that it owed to hospitals and doctors. Since the HMO came under state control, a process known as receivership, insured participants in the plan have continued to received health care unaffected by the financial problems.

"The past two months under receivership have been the best two months Harvard Pilgrim Health has had in several years," Reilly said. "We have decided to stay the course with Harvard Pilgrim Health, and cut no deals with anyone."

However, state officials said they realized that this business plan did not provide an infallible solution.

"There are no guarantees however; we are under no illusions," Reilly said. He added that even under yesterday's plan, the HMO will lose money for calendar year 2000. However, he said that the HMO will probably become profitable in 2001.

The plan announced yesterday must be approved by the state's Supreme Judicial Court, before the HMO can come out from under state control. Even after the HMO regains its independence, Ruthardt said the insurance commission and attorney general's office will continue to closely monitor Harvard Pilgrim.