The Texas Department of Insurance placed Friday Health Plans under takeover after the health insurance company declared insolvency.
The Lone Star State insurance commissioner seized Friday Health Plans assets and was charged with liquidating local property, technology, bank accounts and other valuables to pay outstanding claims. payment, according to a liquidation order issued on Thursday.
Creditors are prohibited from reclaiming money Friday Health owes them and the insurer must stop selling policies in Texas, the order said. Friday Health’s board of directors declared the Texas subsidiary insolvent on March 14, according to the insurance division.
Friday Health’s Texas Health division ended the year with a shortfall of $244.4 million, according to financial filings. A Friday Health spokesperson wrote in an email that the company’s operations in six other states where it sells on health insurance exchanges were not affected by the Texas liquidation order.
Like other health insurance startups, Friday Health launched in 2015 to jump into the health insurance exchange market, betting that the market was moving away from home-owned health plans. sponsored recruitment to individual policies. Friday Health also markets health reimbursement arrangements that allow small employers to provide tax-free benefits that workers can use to purchase insurance on exchanges.
According to Crunchbase, the privately held company has raised $306.1 million in venture capital and debt to support its operations. In its most recent funding announcement last May, Friday Health reportedly employed 600 people and served more than 330,000 members, nearly three times as many as insurance tech companies Alignment Healthcare and Clover Health. At the time, Friday Health estimated it would generate $1.95 billion in revenue by 2022.
Other states are now watching how Texas regulators relax Friday Health’s operations.
The Georgia Fire Safety and Insurance Commissioner’s Office is aware of liquidation proceedings in Texas and is working with other states to closely monitor the situation, a spokesman wrote in an email. Friday Health ended the year with a $5.9 million shortfall in Peach State, according to a financial filing.
The Nevada Department of Insurance is also monitoring activity in Texas, a spokesperson wrote in an email.
Regulators in Colorado, New Mexico, North Carolina and Oklahoma did not respond to requests for interviews.
Friday Health’s failure in Texas will burden other health insurers there. According to Friday Health, rival insurers will have to cover the costs of their unpaid claims through the state’s underwriting association.
The Texas Department of Insurance did not respond to Friday Health’s request for information on the size of the outstanding claim.
Friday Health’s financial situation may also affect the exchange’s federal risk-adjusted payment program, which requires insurance companies to pay relatively healthy policyholders who switch money for carriers with more expensive memberships. The Centers for Medicare and Medicaid Services is still calculating how much insurance companies will pay or receive for the 2022 plan year; the risk-adjusted payments are due in August.
Friday Health estimates it will owe other insurers in Texas a risk-adjusted payment of $535.9 million for 2022. If full payments are not possible, other local insurers will receive less than expected, said Ari Gottlieb, independent healthcare consultant at A2 Strategy Group. .
“We don’t know how other health insurers that pay risk-adjusted rates would be affected and what the consequences would be,” Gottlieb said. “Some of these insurers are not big companies.”
Gottlieb said the volatile financial conditions of health insurance startups exacerbated risks for others. Bright Health Group, for example, estimates it owes other Texas insurers $723 million in risk-adjusted payments last year, according to financial filings. But the company is pursuing a reverse stock split to maintain liquidity and has reported a financial shortfall in Texas. Oscar Health, which announced its new CEO on Tuesday, is expected to owe $1.5 billion in risk-adjusted payments across multiple states, including in Texas, according to financial filings. main.
Gottlieb said questions about whether these insurers can meet their obligations underscore the need for tighter state oversight. Regulators should confirm that insurers hold enough cash to last the year before allowing them to sell policies to more consumers, he said. State officials should also look at insurance premiums, he said, to make sure carriers don’t undervalue them.
Gottlieb said: “We’re not done with this story, but we’re getting close to it. “This is the culmination of irrational pricing and over-growth in the inefficient, individual market model. Friday was just the first insurance company to collapse.
