Trigon Healthcare Inc., Virginia's largest managed-care company, said yesterday that it will close a money-losing subsidiary that sells health insurance in other southeastern states, leaving about 100,000 people without coverage.
Trigon, which bought Mid-South Insurance Co. in 1996 for about $85 million, said it would take an after-tax charge against earnings of $49 million to $52 million during the third quarter to account for the move.
Trigon said it was giving customers of Mid-South at least six months' notice before folding the business, which it said should be "sufficient time to acquire health insurance coverage elsewhere."
Investors cheered the announcement because Mid-South had become a drag on Trigon's earnings. Trigon shares rose $3.75 yesterday, an increase of 16.3 percent, to close at $26.75.
"We're glad they're getting rid of it," said Todd B. Richter, a health-care analyst at Banc of America Securities.
The decision to abandon Mid-South is the latest in a series of retrenchments by managed-care companies opting to exit unprofitable markets.
"Despite all of our efforts, Mid-South's financial performance remains unacceptable," Trigon chief executive Thomas G. Snead Jr. said in a statement.
The subsidiary suffered from premiums that were too low and administrative and medical expenses that were too high, Trigon spokeswoman Brooke Taylor said. Trigon "did not integrate Mid-South as quickly as we should have," Taylor said, adding that some key Mid-South operations have not been melded with those of the parent company.
Even as it attempted to improve its financial health, Mid-South experienced "an unexpected increase in medical costs," Snead said.
About 100 jobs will be eliminated in North Carolina, where Mid-South is based, and about 200 in Virginia, primarily in Roanoke, Trigon said.
Mid-South caters mainly to small groups and individual subscribers in rural areas of North Carolina, South Carolina and Georgia, among other states. Other managed-care companies have also struggled to do business in sparsely populated areas.
The company had previously announced that it would stop serving groups in Tennessee, Georgia and Alabama.
Mid-South plans to get out of the business of group health insurance by April 30, but the timing of its exit from the individual insurance market will require coordination with regulators, Taylor said.