Cutbacks by 2 Insurers Will Affect Thousands in State

Thousands of Californians and their employers could be faced with the task of searching for new health insurance and nearly 500 health insurance workers will lose their jobs as a result of cost-cutting decisions by two national hospital chains.

In a major corporate reorganization, American Medical International of Beverly Hills said Friday that it will close its group health insurance division and lay off 450 employees. About 35,000 people, including 2,000 in California, are covered under current policies, which will be honored until they expire over the next 12 months.

AMI, which had already said it expects to report its first-ever yearly loss, said it has lost $25 million from insurance operations this year.

That development comes two days after Louisville, Ky.-based Humana Inc., one of the nation’s most profitable hospital chains, carried out a major work force reduction in its 3-year-old group insurance program when it laid off about 30 employees Wednesday to consolidate its Northern and Southern California offices.

1,100 Firms in State Affected

Although Humana officials say they will continue to sell group health insurance and supplementary Medicare insurance in California, knowledgeable industry observers in California say the unit’s record of losses may prompt Humana not to renew policies for the some 1,100 California firms and 37,000 workers that have signed up thus far. The nationwide Humana Care Plus insurance program has contributed to Humana’s first quarterly earnings drop in 15 years.

In both cases, experts say, the ambitious group health insurance programs stumbled because they were unable to attract enough new patients to fill beds at hospitals run by the two chains despite extensive company marketing studies suggesting that the insurance field was ripe for major hospital chains.

The layoffs and reorganizations are the latest setback for the beleaguered hospital industry, which has desperately been seeking ways to improve its sagging bottom line as hospital occupancy rates have fallen to about 61% from 76% in 1981, according to the American Hospital Assn.

‘Destructive Level of Competition’

The falling rates had driven the major hospital chains to set up traditional health insurance operations as well as health maintenance and preferred provider organizations in order to help funnel more patients to their doors and fill their empty beds.

The crowded field has made for what AMI President Walter L. Weisman on Friday termed “a destructive level of competition.”

Although group health insurance premiums are expected to bring Humana $350 million in revenue this year, the company lost $23 million in its group health division in the quarter ended June 31, according to Randall Huyser, a health-care analyst at Montgomery Securities in San Francisco.

At AMI, “It became evident that this national insurance strategy would not enhance our core business by building local hospital market share,” acknowledged Weisman, adding that AMI will continue to market certain health maintenance organization and preferred provider organization insurance plans.

In addition to closing down its group health unit, AMI will also curtail capital spending by 60%, eliminate its divisional hospital management structure and consolidate its regional offices, Weisman said.