It All Started With Ships

Before Thomas Pyle worked for the Harvard Community Health Plan in 1972, he did some consulting work with the British Ocean Steamship Company, one of the finest shipbuilding companies in the world.

Ocean Steamship had a tremendous record with its wares. An average Ocean vessel spent only about eight hours each year in drydock for repairs. No ship ever left Ocean's docks without the personal inspection by the company's director. But when the veteran shipbuilders bought a tanker of their own, for all their master craftsmanship, they simply couldn't get an insurance company to give them a break.

It was that incident that got Pyle thinking about an insurance collective for the Harvard Community Health Plan. Pyle's brainchild reached fruition last weekend when the Harvard Plan, along with ten Harvard-affiliated hospitals, incorporated their own insurance company on the Cayman Islands in the Carribean.

"My work with Ocean Steamship convinced me that insurance people were less than imaginative when assigning rates," Pyle says now. And for the health plan, which experienced a $150,000 malpractice insurance hike in one year despite no comparative increase in the number of malpractice suits, a private non-profit insurance company was just what was needed.

After mentioning the idea, Pyle said, it snowballed, taking the ten Harvard affiliates, all with stellar malpractice records, with it.

And it only took about six months after the hospital representatives got together on the proposal before they sealed the deal on the small Caribbean Island.

The hospitals had to go "off-shore," as it is called in the insurance trade, because to make the plan work they needed a country that levies no income or corporate taxes.

A similar venture established in the United States would take much longer and cost more in the long run because of the U.S. tax laws, Harvard officials involved in the project said earlier in the week.

Pyle warns that although the plan should work well for hospitals with good records, "it could be a disaster for those with poor ones." Since the announcement a number of hospitals have talked to us," Pyle said. "But this type of plan is not for everybody."

Nevertheless, for the Harvard affiliates, which have paid $8 million in insurance premiums, but have had to settle for only $250,000 for a five-year period, the venture could save $2 million immediately and another $2 million in dividends at the end of the year.

Individual hospitalroom rates may be lowered by as much as $4 per day for the participating institutions if the new insurance plan lives up to its potential.