KPS Health Plans (KPS) was placed into receivership by the Thurston County Superior Court in August 1999 for failing to meet the statutory requirements for net worth. At the beginning of receivership, KPS had an $8 million deficit. For almost six years now, the company has continued to make significant progress, building its enrollment back up and consistently paying claims on time.

However, despite this significant progress and the ongoing support of the community, KPS remains far below the minimum required net worth of $3 million.

The Insurance Commissioner has a fiduciary responsibility to consider all offers to purchase KPS Health Plans and has set strict requirements for any offer to even be considered. An offer has been made that Commissioner Kreidler feels meets these requirements and would be in the best interest of the carrier's long-term viability.

Kreidler has tentatively agreed to sell KPS Health Plans of Bremerton to Group Health Cooperative (GHC), a move that will enable the Kitsap Peninsula insurer to emerge from a half-decade in receivership.

Why is the company being sold?

The Insurance Commissioner is obligated by law to ensure that KPS is operated in the best interests of the subscribers, the community and the company itself. It's true that during the past five years, the company has made significant progress under the Office of the Insurance Commissioner's (OIC) control. But KPS remains in a precarious financial position. It continues to be under-capitalized and its cash reserves remain well below minimum requirements.

It could take years for the company to generate the capital it needs and to meet the other requirements necessary to emerge from rehabilitation. And any extended stretch of adverse claims experience would have a significant impact on KPS's viability. There's a fair offer on the table and Commissioner Kreidler believes this purchase represents the best interests of everyone concerned.

Were there any other offers?

Many companies have expressed interest in acquiring KPS during the past five years, but none were deemed viable or in the best interests of the subscribers, the community or the company. Commissioner Kreidler has maintained that, for any offer to be considered it must contain certain conditions, including that KPS remain a non-profit carrier. Kreidler has turned down offers from for-profit companies. Group Health Cooperative has met the Commissioner's requirements by allowing KPS to keep its identity and remain a non-profit, community-based health plan.

So, this isn't a fire sale?

Correct. The company is not in imminent danger of failing. But, the company is under capitalized and thus vulnerable to multiple high-cost claims experience and other adverse economic impacts. Group Health's offer presents an opportunity to:

Remove the question mark from the company's future and ensure its continued viability
Develop a plan to reimburse the $6 million in surplus notes that providers, clinics, pharmacies, and hospitals accepted in order to keep the company operating
Ensure that subscribers continue to receive the coverage they purchased
Build on the current KPS business model
Maintain KPS' identity and presence in the community

Why now?

KPS has successfully operated for the past five years under OIC receivership and has made great strides. However, it's been a precarious existence - one that is subject to many conditions and factors outside of the company's control. This sale removes the unstable nature of the company's continued financial health, ensuring that the community will continue to enjoy the services and benefits of a local-based health insurance carrier.

What about the prediction I read in the paper that KPS was expecting to emerge from state control next year?

As the receiver for KPS, Commissioner Kreidler has never projected or predicted a date for the company to emerge from the court-ordered receivership. The OIC's primary goal has been to maintain the company's operation in a positive direction - to return it from the brink of insolvency. For the past five years, KPS has shown significant progress in that direction. But even if it continued at its current rate of recovery, there is no assurance that KPS can accumulate the necessary reserves to meet minimum requirements and operate on its own in the near term. The company is still several years away from coming out of receivership, even at its projected growth and assuming it doesn't suffer further additional losses.

What happens next?

Group Health has 45 days to complete its "due diligence" or inspection of the company. If the Group Health board approves the purchase, the company will make its final offer to Commissioner Kreidler. If Kreidler accepts the offer, it will then be filed with the Thurston County Superior Court for final approval by the receivership judge.

What effect will the sale have on policyholders?

Policyholders wouldn't notice any change in their coverage and benefits. Group Health Cooperative has pledged that it will treat the company as a separate entity, retaining operations in the Bremerton area.

Will this affect my coverage?

No. If the sale is approved, all policies and benefits will remain in effect under the new ownership.

Will a sale mean KPS loses its identity?

No. It's important to note that Group Health Cooperative is a consumer-owned non-profit cooperative-not a private-sector, for-profit operation. Group Health has agreed to continue operating KPS as an individual entity, separate from GHC for a period of at least four years. And one of the primary reasons for GHC's interest in KPS is its business model.

What happens to the $6 million in debt that was accepted to allow KPS the opportunity to be rehabilitated?

GHC's offer includes an immediate 50 percent repayment of the surplus notes and the potential for further repayment based on future performance of the company. This is money that will go directly to doctors, dentists, pharmacies, clinics, hospitals, and other providers who accepted the notes as part of the rehabilitation plan.