Moda Feels the Crunch; Cutting Administrative Costs by $30 Million

Moda Health is in dire straits and taking immediate action to reduce administrative expenses and rein in claims costs.

Dave Evans, senior vice president and chief financial officer, conveyed the troubling news to Moda’s managers and directors in late December, according to a memorandum leaked to The Lund Report.

“It is critical that we increase our profit levels immediately, and it will take all of our attention as well as that of our respective teams and employee,” Evans wrote.

Moda’s president, Dr. William Johnson, has created a cost stewardship accountability and is working with a team to evaluate priorities, consider new initiatives and look for claims savings, with more details available early this year.

Layoffs are also anticipated to help reduce administrative costs by $30 million, with 20 percent of those expenses coming from Moda Health Plan and 15 percent representing consolidated administrative costs. All unnecessary travel and education has been eliminated, and contracts and other agreements are being critically evaluated, with staff members asked to “go back and ask for reductions in pricing or cancel the contract if we are not getting the value we anticipated,” Evans wrote. Also, other non-essential administrative dollars have been aggressively reduced.

“Our strategy must be pursued with vigor, laser focus and urgency,” Evans added.

These cost reductions come after the federal government refused to pay back Moda Health an estimated $82.5 million from the risk corridor program, which was designed to protect health insurers from losses during the first three years of the Affordable Care Act.

Jonathan Nicholas, senior vice president of strategic communications, attributed Moda’s financial problems to the decreased enrollment projections this year, but didn’t share specific numbers.

“It’s a bit early for that yet; we hope to have a realistic projection by January 15,” he told The Lund Report. Last year, Moda enrolled 102,000 people, after having the lowest premium rates among insurers, then raised its rates by 25.6 percent this year with the average increasing ranging from $245 to $307 per month.

Latest enrollment figures indicate that 133,776 people have signed up for coverage as of Jan. 2, according to the latest figures released by CMS earlier today. However, specific plan enrollment numbers will not be available until April, according to Jake Sunderland, spokesman for the Oregon Insurance Division.

Earlier, Moda Health has been stung with yet another downgrade of its credit rating by A.M. Best. This is the second time in the last several months that Moda’s taken a smacking from the world’s most authoritative insurance rating and information source. The rating also impacts Moda’s subsidiaries – Dentists Benefits Insurance Company and Northwest Dentists Insurance Co.

But Moda doesn’t appear bothered by the downgrade. “We had anticipated this decision from A.M. Best,” Evans told The Lund Report. “As we have been saying from the start, we knew that this business of healthcare transformation would be turbulent. And it’s proving to be exactly that. Still, we remain confident that, once the Affordable Care Act is fully implemented, our ratings with AM Best will return to their historically high levels.”

A.M. Best took the action after Moda reported its third-quarter results, which showed a significant decline in both absolute and risk-adjusted capital. That came after the  the Centers for Medicare and Medicaid Services refused to repay the health plan for 12.6 percent of its losses from the risk corridor program, approximately $89.5 million.

According to the press release issued by A.M. Best, ”The risk corridors program was “The revised business strategy includes the shrinking of Moda Health’s geographic footprint by exiting Washington’s individual and group markets, as well as an expectation of a decline in individual enrollment in its core markets. Additional losses or higher enrollment than projected could further strain risk-adjusted capital.” During the third quarter, Moda had a negative cash balance of $30.2 million. Despite that dismal figure and continued net losses quarter after quarter, the health plan’s cash position actually improved from the previous year where it stood at negative $47.1 million.

Moda’s financial picture may turn around if Oregon Health & Science University acquires a 25 percent equity position by coverting the $50 million surplus note. On Nov. 11, both parties signed a nonbinding letter of intent. However, final agreement would require approval by the boards of directors of both OHSU and Moda as well as state regulatory approval. 

Once that deal is completed, Moda is not expected to pay back the $50 million surplus note from OHSU, which was intended to help capitalize its healthcare efforts.

The strategic alignment gives Moda the opportunity to compete vigorously with the likes of Kaiser, Providence and the new joint venture announced by Legacy Health and PacificSource Health Plans. With a cadre of hospitals and physicians from across the state, the partners have a distinct advantage over non-integrated health insurers such as Regence BlueCross BlueShield and Health Net, which has been acquired by Centene Corp.

"We want to make sure a health plan sees the world like we do, that covering more Oregonians is a good thing, that has a strategic alignment and has the capital that Moda needs to grow,” Lawrence Furnstahl, chief financial officer at OHSU told The Lund Report earlier. “For the past three years we’ve been talking about how to increase our strategic alignment.

Diane can be reached at [email protected].