Health Insurance Finances: Slow-Growing Companies Post Strong Results, While Fast-Growing Insurers Struggle

As Moda Health seeks to find its financial footing, money challenges prompt Health Republic to exit the Oregon market, but Regence BlueCross BlueShield is thriving

This is shaping up to be a tortoise-and-hare year for Oregon’s health insurance companies.

Insurers that sprinted to grow in a hurry when the Affordable Care Act gave them access to new members are now panting for breath as they struggle to get their finances in order. Among the hares was Moda Health required an emergency loan as its bank account balance went negative. Health Republic decided to stop offering insurance in Oregon altogether.

Those insurers content to take the tortoise approach, growing slowly and steadily, meanwhile, are learning that slow and steady really can win the race. Regence BlueCross BlueShield of Oregon, which has opted not to sell its plans in government-run insurance marketplaces, has not grown aggressively –its member count is up by about 20,000 since the start of the year, to 493,558. But its slow and steady approach has left Regence BCBS unharmed by low payments from a federal program that other insurers relied on, and made it the most profitable Oregon insurers in the third quarter of this year.

Overall, losses continued to mount at most of Oregon’s health insurers in the third quarter of this calendar year.

There are many ways to rank insurance companies – by the number of lives covered, profit, growth, and so forth. Here’s how Oregon’s largest insurers stack up when comparing premium income for the first three quarters of the year:

  • Kaiser Permanente: $2.37 billion in net premium income in the first nine months of 2015, up 5.6 percent over last year.
  • Regence BlueCross BlueShield of Oregon: $1.41 billion, up 0.4 percent.
  • Providence Health Plan: $894.5 million, up 8 percent.
  • Moda Health Plan: $576 million, up 4.4 percent
  • PacificSource Health Plans: $420.95 million, down 10.5 percent.
  • Health Net Health Plan of Oregon: $12.6 million, up 34.2 percent.
  • LifeWise Health Plan of Oregon Inc.: $170.5 million, up 43.6 percent.
  • Health Republic: $48.3 million, up 180 percent.
  • Oregon’s Health CO-OP: $35 million, up 734 percent.

Click here for a spreadsheet snapshot of the state's major health insurers.These enrollment numbers include most of the Medicaid and Medicare members, but there are some exceptions. Kaiser did not include its Medicaid members and PacificSource has a separate insurance company for its coordinated care organization. 

Moda: Financial challenges follow growth spurt

Of Oregon’s large health insurers, the darkest cloud looms over Moda Health Plan Inc., which made an aggressive push for growth that has not paid off financially. Moda offered some of the lowest rates available to individual buyers of health insurance through exchanges, and its reach soared – from 86,289 members at the end of 2013 to 220,399 members as of Sept. 30. In the years leading up to the launch of insurance exchanges, Moda changed its name (from ODS), then paid for naming rights to its headquarters location downtown to the arena where the Trail Blazers play where it spent $40 million, according to unconfirmed reports.

The swarm of new enrollments has drained the insurer of cash, and two unexpected hits have made things even harder. The first hit: the federal government’s announcement that it would pay insurers depending on the “risk corridor” program only a fraction of what they expected when paying into the fund, which cost Moda $76.4 million in revenue it had been counting on. In a second hit, ratings agency A.M. Best responded to the news by announcing it would review Moda’s credit rating – a move that could make continued operations even more expensive for the insurer.

Moda’s third-quarter financial report to regulators shows just how strapped the company has become. It has overdrawn its own bank accounts, reporting a negative cash balance of $30.2 million. Despite that dismal figure and continued net losses quarter after quarter, however, Moda’s cash position has actually been improving. The company’s cash balance was negative $47.1 million a year ago.

Some of the moves Moda has made to improve its financial position are public and visible to the world. The company announced in late October that it would be exiting Washington and California insurance markets. It’s raising rates significantly in 2016. It’s in talks about possibly turning a $50 million loan from OHSU into an ownership stake in Moda.

It’s not clear how well positioned the for-profit insurer is to recover from the hits it has taken. As a subsidiary of ODS Companies, Moda has access to capital from its deep-pocketed parent company, and the proposed deal with OHSU would also help. And while it has spent more than it’s brought in over the past year, and also reported losses through 2014, it closed the third quarter of 2015 with a $2.9 million profit. But it remains to be seen how higher rates next year will affect member numbers and the bottom line.

Health Republic: Winding down operations

While Moda’s future is in question, the outlook for Health Republic is much more certain: This insurance plan borne of the Affordable Care Act is going away. Created after the ACA established a new tax-exempt category for health insurance nonprofits that receive CO-OP program grants or loans and meet other requirements, Health Republic grew more rapidly than the other insurer launched through the same program, Oregon’s Health CO-OP. And that fast growth may be part the problem.

Health Republic struggled financially from the beginning. It posted a $5.1 million net loss in the third quarter of this year, double its loss during the same period a year ago. It has had to borrow to stay afloat. And the risk corridor reimbursement cuts that hurt Moda have also hurt Health Republic – cutting its net premium by $11.9 million in the first nine months of this year. If it had been paid as much as it expected through the risk corridor program, Health Republic would be profitable this year.

Instead, it was placed under administrative supervision by the Oregon Insurance Division. On Oct. 16, Health Republic announced it was done enrolling new Oregonians in its plans.

Oregon’s Health CO-OP: Striving to survive a challenging market

Oregon’s Health CO-OP, created through the same program that Health Republic used to get started, made the case in its financial statements that it is aiming to survive in a marketplace that felled its closet competition.

It notes that it exceeds federal and state insurance company capital minimums, including state rule that CO-OPs must have at least $3 million in capital and surplus.

So far, the nonprofit CO-OP has funded its growth with a $7.2 million no-interest loan from the federal government, a $51.7 million solvency loan via CMS, and a $1 million surplus note from CareOregon to be used only on marketing – CMS and start-up funds could not be used to promote the plan. Later, Oregon’s Health CO-OP borrowed another $1.2 million from CareOregon, again for marketing.

Though the company had expected to receive $6.3 million through the federal risk corridor program, it is currently only budgeting for $415,000, “due to the uncertainty of actual funds the Company will receive under this program."

PacificSource: Seeking partners, expecting growth

PacificSource Health Plans was one of just three big health insurers in the state to report a profit in the third quarter of this year. The others are Moda and Regence BlueCross BlueShield of Oregon. PacificSource’s $1.2 million July-to-September profit came about as the insurer cut spending, both on administrative costs and on the cost of care, as its revenue also declined.

Lower federal risk corridor payments reduced PacificSource’s net premium income by $2.7 million in the first nine months of this year, but the company still ended the period with a strong cash position, reporting that it had $26.6 million in cash and equivalents as of Sept. 30.

PacificSource officials appear to see their third-quarter 2015 performance as a sign of things to come. The company is in talks to develop a joint venture with Legacy Health, and documents obtained by The Lund Report show that the insurer expects a bright future. A third-party valuation estimated that PacificSource is valued at between $271 million and $343 million. The insurance company forecasts significant growth through 2018.

Health Net Health Plan of Oregon Inc.: Comfort from a deep-pocketed parent company

Health Net Health Plan – an Oregon subsidiary of a California company that goes by the same name – has not experienced the same meteoric growth at Moda, but its balance sheet shows that it faces some of the same financial challenges nonetheless.

Health Net reported a $1.2 million net loss in the third quarter of 2015. It ended Sept. 30, 2015, with $26.6 million in cash and equivalents on its balance sheet – but only after taking multiple cash infusions over recent years. The company received a $29 million capital contribution from its parent company on Dec. 19, 2014, followed by $10 million on June 11, 2014, $10 million on June 30, 2015 and $15 million on Sept. 29, 2015.

The risk corridor program is reducing its surplus by $2.1 million, and cut into its net premium income by $837,802.

But with a deep pocked parent company that’s shown a willingness to bail it out, Health Net appears positioned to weather its financial challenges. As Health Net Inc. of California moves ahead with an announced merger with Centene Corp., a Fortune 500 company, time will tell whether new ownership affects Health Net’s Oregon options. A public hearing on the merger called last week by the Oregon Insurance Commissioner went smoothly with no opposition.

Kaiser Permanente: Cutting administrative spending as health costs climb

Kaiser Permanente continued to post financial losses in the third quarter of this year, reporting a $567,233 net loss in the three months ending Sept. 30.

The Affordable Care Act risk corridors program’s underpayments reduced Kaiser’s net income by $3.9 million, a reduction to the company’s 2014 results.

The nonprofit reported that it has cut administrative spending while improving revenues. But its members’ hospital and medical costs climbed by $161.8 million in the first nine months of this year, compared to the same period last year. That $2.3 billion in hospital and medical spending ate into Kaiser’s bottom line.

As of Sept. 30, it had just $7.99 million in cash and equivalents on its balance sheet – down from $29.3 million a year earlier.

Kaiser noted in its report to regulators that its official count of 473,000 members does not include people enrolled in CCOs receiving Kaiser care, and does not include employer-funded plans. It says it has about 39,230 people enrolled in CCOs this year, and about 9,740 in employer-funded health plans.

Regence BCBS: Profiting without insurance exchanges

Regence BlueCross Blue Shield of Oregon has opted out of participating in the federal insurance exchange set up for residents of the state – and that choice, while making it somewhat harder for the company to recruit new members, gave the insurer a financial advantage over most of its competition. Only companies listing health plans on exchanges participated in the risk corridor program that hurt the bottom line at so many places – so Regence BCBS skipped that pain.

Before the Affordable Care Act was passed, Mark Ganz, president of Regence parent Cambia Health Solutions, expressed opposition to many details of the sweeping legislation. During implementation of health reform, Regence has repeatedly chosen to go its own path.

Regence has proven to be the most profitable insurance plan in the state so far this year. In the three months that ended Sept. 30, it reported a $32.4 million profit, up from $1.7 million in the same period of 2014.

Providence Health Plan: Cash reserves provide solid financial buffer

Providence’s net financial loss from July through September of this year was $10.96 million, compared to a $7.1 million profit over the same period in 2014. It had no reported effect of ACA risk corridors on net premium income.

But even as its expenses – in particular healthcare spending – have climbed, Providence has continued to sock away cash in its reserves each year. As of Sept. 30, Providence Health Plan had $116.2 million in cash and equivalents, more than any other health insurance company in the state, positioning it well to handle its financial losses.

On Oct. 19, Michael Cotton was named CEO of the health plan; he’d previously been an insurance industry leader at companies in the southeastern U.S. Cotton replaced Michael Gordon White, who had been serving as interim CEO following the retirement of Jack Friedman.

LifeWise Health Plan of Oregon

LifeWise Health Plan of Oregon reported a $4.2 million net loss in the third quarter, compared to a $218,437 net loss during the same period last year. Enrollment in its plans dropped from 73,415 as of June 30, to 70,682 as of Sept. 30.

So far this year, LifeWise has drawn down its reserves by $7.1 million this year. LifeWise ended Sept. 30 with $16.1 million in cash and equivalents on its balance sheet.

-- Reach Courtney Sherwood at [email protected]. Follow her on Twitter at @csherwood.

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