FRANKFORT, Ky.-Citing over-utilization and operating losses, Anthem Blue Cross & Blue Shield, Kentucky Operations, and United HealthCare of Kentucky Ltd. have withdrawn their health plans from a state purchasing alliance's 1998 offerings.

The health plans parted ways with the Health Purchasing Alliance during annual renewal negotiations last month.

The Alliance, formed under the 1994 Kentucky Health Reform Act, became effective July 1995 and covers about 275,000 lives in the state. Of the total, 80% represent active workers and pre-Medicare retirees of the state school system and government.

Anthem BC/BS and United HealthCare have offered their plans since the Alliance's inception and together represent nearly 30% of its business.

A spokeswoman for Anthem BC/BS said the company experienced "significantly higher" than expected utilization with its preferred provider organization products.

After the failure of negotiations over a proposal to offer more cost-effective health maintenance organization products in place of its PPO, Anthem withdrew its submission, she said.

"Benefit design and pricing are the key issues we couldn't come to terms with," she said.

The Louisville, Ky.-based health care company "suffered $22 million in claim losses with the Alliance in 1996. We felt it necessary to cut some losses," she said.

United HealthCare of Kentucky also experienced higher utilization than it expected with its HMO and point-of-service products offered through the Alliance, said Budd Fisher, chief executive officer of the Lexington, Ky.-based health care company.

About 60% of the members elected the "highest benefit plan" offered with a $5 copayment, he said. That compares with only about 10% of the commercial market electing that plan, he noted.

That plan is "very, very rich" in benefits and "fosters overutilization," he said. "We'd been talking to the Alliance about our alarm for several months." However, "there is no flexibility under program rules to change much of anything."

While he has no exact figures, Mr. Fisher said he knows "there are operating losses associated with the Alliance."

"We feel it is better for us to concentrate on the commercial market," he said.

Julia Costich, interim executive director of the Alliance in Frankfort, said Anthem and United HealthCare's withdrawals from the Alliance do create an inconvenience for members, many of whom will have to fill out new applications and find new health care providers.

However, she added that the Alliance has accepted two new health plans-Medquest Trover Health Plans and Healthsource Kentucky-that will replace Anthem and United HealthCare. The nine other health plans offered through the Alliance in 1997 renewed for 1998.

Meanwhile, speculation continues that Kentucky Gov. Paul Patton will call a special legislative session as a result of Anthem and United Healthcare's moves to discuss the state's health care laws.

A spokesman for the governor's office said no decisions have been made.