Michael Conway never had an “aha” moment.
Instead, the Colorado insurance commissioner’s realization that he needed to put Friday Health in charge developed like a slow burn. The first time when the company announced the separation of CEO and chairman in December. Then with a call saying that the health insurance company needed capital to avoid bankruptcy. Then Friday Health revealed in May that it hadn’t raised the roughly $100 million needed to stay afloat, he said.
“The writing on the wall,” Conway said.
Conway placed Friday Health on the receiving list last month, making Colorado the fifth state to do so this year. On the same day, the company fired the remaining employees. The carrier’s failure follows Bright Health Group’s decision to terminate its commercial insurance business in Colorado and 14 other states.
All in all, these health insurance startups run into the same serious problems: They undervalue their products, says Sabrina Corlette, co-director of Georgetown University’s Center for Health Insurance Reform. their products and growing too fast.
The failures of Friday Health and Bright Health are indicative of a larger trend: Insurtech has struggled to compete with legacy companies, which suggests the health insurance industry may not be ripe for growth. disruption as entrepreneurs and investors believe. According to a McKinsey report, the number of foreign exchange insurers leaving the states accelerated this year to the highest level since 2017. Back then, a wave of health insurance co-operatives claimed bankrupt.
“It’s been a rocky road for exchanges. I think Friday and Bright are proof of that,” Corlette said.
As health plans come to an end, providers, competitors, and providers run the risk of being shorted, even though states have systems designed to make sure everyone gets paid. . Health Friday and Bright Health situations have left insurance commissioners in Colorado, Georgia, Nevada, North Carolina and Oklahoma scrambling to contain the mayhem.
“We followed them. We were alert. We have notified the guarantee association. We did our job of oversight,” said Oklahoma Insurance Commissioner Glen Mulready (right). “I spoke with the CEO. I gave her some time to try this fundraising. I told her I was skeptical but wished her all the best, and then stepped in when that didn’t come true. So I don’t think I can do anything else.”
Friday Health did not respond to a request for an interview and Bright Health declined to comment.
Pursuing payments
When Bright Health announced its exit from the individual market in October, the company said it expected to recoup $250 million from the states after shutting down state-based subsidiaries. However, during the company’s earnings call in May, executives said they now expect to owe the states $200 million for unpaid medical bills.
In some areas, health systems are hunting Bright Health for overdue claims.
In April, SSM Health based in St. Louis sued Bright Health for alleged nonpayment of $13.1 million for care provided in its Oklahoma facilities. Mulready, who declined to name the health systems, said Bright Health had settled with two other hospital chains and agreed to pay 60 percent of what they owe. Desperate hospitals could start charging patients for bills Bright Health should have paid, he said.
Meanwhile, Bright Health’s corporate structure makes it difficult for Mulready to control how the company spends money, he said. Bright Health used its Colorado business license to register to sell health insurance in Oklahoma and several other states, he said, making Colorado regulators responsible for providing all health care providers. provides services in Oklahoma.
“We don’t care at all about all of that because it’s all handled by Colorado,” Mulready said. “My hands are a bit tied behind my back. It’s a little frustrating to be out of control.
A similar story is playing out in North Carolina, where providers and policyholders have left the insurance department inundated with complaints about hospital bills, said Jackie Obusek, deputy insurance commissioner. not yet paid. She said Bright Health has set up a separate subsidiary in North Carolina and the regulator is monitoring how the company meets its obligations.
Some hospitals still dealing with the aftermath of Bright Health’s problems, Obusek said, are trying to avoid similar problems by denying treatment to Friday Health members, something North Carolina doesn’t. allow. “That’s unacceptable to us and we’re trying to get that message out as clearly as possible,” she said.
North Carolina and other states will rely on underwriting associations to cover medical bills that Friday Health cannot pay. Every state requires every insurance company to join these nonprofits, which are designed to protect policyholders from insolvency.
Prioritize the provider over the insurance company
The most recent wave of health insurance failures occurred around 2017, when state regulators shut down nonprofit cooperative carriers after unexpectedly small reimbursements from the regulatory program. adjust the risk of ACA leading to depletion of reserves. Low premiums, insufficient government funding and marketing constraints also make it difficult for the 20 Consumer Orientation and Operations Programs, according to a report by the Center for Health Insurance Reform. Only three cooperatives are still active.
When health insurance plans declare insolvency, states must ensure providers and providers are paid and administer coverage to policyholders.
In the case of Friday Health, regulators hold weekly calls with each other and use a general contractor, Test Resources, to help coordinate the intake, Conway said. Unlike Bright Health, he said, Friday Health prioritizes its available funds to pay providers but is slow to pay suppliers.
“One of the things that we’re totally focused on is making sure all of their accounting makes sense, and frankly it’s prudent,” says Conway. “Whenever you have setbacks or failures, things don’t go smoothly. They just don’t. There are problems that come up, there are problems that come up, so you want to be cautious in your analysis.”
Colorado and Nevada are banking on Friday Health holding enough capital to continue serving members through the end of the year. In contrast, Georgia, North Carolina and Oklahoma are asking the insurer to cut ties with policyholders next month. Those three states have worked with federal regulators to create special enrollment periods for Friday Health members and will require them to manually sign up for new plans This plan may have different monthly premiums, health management policies, and provider networks. Any cost-sharing amounts previously paid by Friday Health customers to their old plan will not be applied to their new coverage.
Unlike when the partnership failed, Friday Health customers will have multiple choices: The average consumer has 88 different exchange plans to choose from this year, according to McKinsey & Co.
UnitedHealth Group is best positioned to attract about 125,000 Friday Health customers because it operates in every state where insurance technology is retreating, Bloomberg Intelligence Senior Research Analyst Duane Wright wrote. in a research note last month. Centene’s exchange footprint overlaps in four states and CVS Health’s Aetna in three states, he writes. Friday Health membership brings in about $1 billion in revenue.
Insurers that acquire these members will have to balance the reward of collecting more premiums with the risk that these individuals will incur large medical costs. Obusek said any disruption previous Friday Health members brought to their risk pool would justify a premium increase, costing consumers the cost of Friday Health’s debacle. for several years.
In addition to preparing for a large influx of customers, insurers are monitoring Friday Health’s outages to see if they can pay their share of the Care Act’s risk-adjusted program. Affordable or not, the program requires insurance companies that pay healthier customers to pass a portion of their profits to carriers that ship insurance to sicker, more expensive consumers. worse.
If Friday Health is unable to make the $779.7 million payment in October, the total amount owed by providers through the program will be reduced proportionally to the shortfall. Insurers are also watching to ensure Bright Health pays out $1.9 billion worth of risk-adjusted liabilities. Bright Health failed to contribute an adequate risk adjustment last year, SSM Health alleges in its lawsuit.
A spokesperson for the Centers for Medicare and Medicaid Services wrote in an email. If Friday Health or any other insurer is unable to pay the full amount, CMS will use any available collection procedures and send any cash collected directly to the carriers. other downloads, the spokesperson wrote.
Ari Gottlieb, an independent healthcare consultant at A2 Strategy Group, said any shortfall in risk-adjusted payouts could put other smaller insurers down. into insolvency.
“It’s a mess for regulators, and it can be quite dramatic for employees and the community,” Gottlieb said. “The system is set up primarily to make suppliers inclusive. I think some regulators acted quickly when problems appeared and others took longer to do anything.”
How insolvency insurers’ limited funds are prioritized varies from state to state.
In anticipation of Friday Health’s failure, Colorado updated its underwriting association rules this year to pay out the risk adjustment needed to keep another insurer from defaulting at a similar rate. similar to paying a service provider’s bill. “If the risk adjustment isn’t paid out, that could have meaningful implications for insurers, whether they’re small, medium or large,” Conway said.
Georgia, Nevada, North Carolina, Oklahoma, and Texas require bankrupt insurers to reimburse providers of unpaid medical claims before paying any risk-adjusted amounts to insurance company.
Nevada has hired an outside company to review Friday Health’s earnings reports and is in the process of determining if it has enough cash to pay the bills in full, Nevada Insurance Commissioner Scott Kipper told the BBC. know. “There are some profit and loss statements that really don’t match what has been filed before,” he said. “Their risk-based capital ratios are inconsistent. It finally got to the point where we had to take some action.
