What has made this corner of Washington State so unusual in solving our personal and business insurance needs? We have in the past and still today depend on ourselves for satisfying our own insurance needs. To illustrate how we have provided for our own insurance needs from the past to the present I will share some background regarding insurance in our state as well as a picture of the current environment of health insurance in our county.

In the early 1900’s, physicians in Washington State began to contract directly with employers, primarily in the logging industry, to render services to their employees and, eventually, their employees’ families. As more and more physicians moved to the area, county medical bureaus formed for the purpose of endorsing and referring contracted physicians. Subsequently, the medical bureau system (physician-sponsored health care service contractors) was formed and remained unique to Washington State. In 1946, a group of physicians sponsored by the Kitsap County Medical Society founded what we now know as KPS Health Plans to meet the needs of residents in the Kitsap and Olympic peninsulas.

In the last fifty years, community groups of physicians, providers, political and business leaders have been instrumental in the long-term survival of our local health insurer, KPS. These community efforts supported KPS during the late 1960’s, again in 1980 and as recent as 1999. Without local purchasing and community support their would be no KPS Health Plans. The efforts of our community through participation in the community planning group; subscribers deciding to stay with a local health plan; and the contributions of your local hospitals and physicians and providers are the true reason why the current rehabilitation of KPS is the first for Washington State.

Another example is individual insurance. While only nine of the thirty-nine counties in Washington State have had the opportunity to purchase health insurance over the past eighteen months, Kitsap County has had individual health insurance products continuously available for sale for more than 50 years. As the majority of Washington State has gone without individual insurance coverage, our corner of the state has remained insured. The Kitsap and Olympic peninsulas have hospitals, physicians and health insurance to satisfy the needs of our peninsulas’ population. Each of these examples helps depict how we have depended upon ourselves to satisfy our insurance needs.

These examples are unlike the experience across other states. Health insurers across the country experience a forceful economic cycle that controls the prices and profits of all health insurers. This economic cycle, that continues to disrupt even the largest insurance carriers, appears to be unbreakable. Over the last 12 years, the three largest carriers in our state have attempted to do just that — break the cycle of fluctuating profits and losses. But, even large carriers in a small state cannot end the ups and downs of this regional-based industry. These efforts have been felt locally as they have lengthened our most recent cycle from three years up and three years down to five years up and five years down. The accompanying chart displays the last 20 years of the health insurance economic cycle in Washington State. The lengthening of this cycle eradicated nearly all the small carriers in Washington State. Over the last decade, a small physician-owned carrier had little chance of holding enough reserves to withstand a lengthy down cycle.

Nationwide, last year, the 34 largest health maintenance organizations (HMOs) reported aggregate losses of $863.9 million. Only one insurer with over 500,000 members reported a profit during 1999. In Washington State alone, health insurer losses totaled well over $200 million during the year 1998. KPS survived the managed care trend of the 1980’s and 1990’s. But, the losses of managed care are still evident throughout our region and state. The magnitude of loss in managed care products has forced most of the small carriers in our state to sell or merge over the past few years.

During the last downturn in the cycle, hospitals, physicians and providers in the Kitsap and Olympic peninsulas stood behind our local health insurance plan and supported the losses of the company. In return, your local health insurer continues to provide health insurance to federal employees, educators, county employees, and many, many businesses and individuals. How did this happen?

Through helping one another in the time of crisis. The hospitals, physicians and providers of Kitsap and Olympic peninsulas provided KPS Health Plans with over $6 million in long term debt to carry the local insurer through its down cycle.

Today, KPS Health Plans is still offering health insurance to local businesses and individuals throughout the Kitsap and Olympic peninsulas. And, they are most grateful for the support and local purchasing efforts of this region.