Moda Health Plan will resume selling individual and group health insurance in Oregon and Alaska under an agreement reached with regulators in three states, the Oregon Department of Consumer and Business Services said on Monday, less than two weeks after the insurer was placed under government supervision due to concerns about its finances. Members who’d been told they would have to find new coverage will instead be able to renew, prices will not change, and the network and other plan details Moda offers will also stay the same under a plan to raise $179 million in capital, regulators told The Lund Report.
“Since January 27 we have been working through the process of assuring DCBS of our ability to continue to service our Individual customers in Oregon and Alaska,” Robert Gootee, CEO of Moda Inc., the parent company of Moda Health Plan, said in an emailed statement. “They have done an excellent job of quickly analyzing a difficult and rapidly changing set of circumstances. We’re pleased that together we have reached an agreement on a path moving forward that ensures Moda members will see no interruption in coverage."
Some details of the plan to boost Moda’s risk-based capital are confidential under state law, including dollar amounts, time frames and parties involved in specific financial transactions, said Patrick Allen, director of the Department of Consumer and Business Services. “We don’t want to undermine their ability to do these transactions,” he said, noting that publicizing how much Moda hopes to sell its assets for or making public its deadlines could affect the price it can get, and make its position less competitive.
When asked if Moda was raising its funds by seeking outside investors, or through help from its parent company, Allen responded that investors were not a significant part of the plan, and that “there’s a little bit of parent company transaction.” A press release said that Moda will obtain “surplus notes, which are debt instruments considered capital and surplus.”
“I would broadly characterize this (capital) as largely from unrelated third parties,” he said.
A consent order that the company’s executives have accepted states that parent Moda Inc. will sell off assets, with proceeds going to boost capital at Moda Health.
The order allows Moda Health leaders to remain at the helm of the business, but also requires close work with regulators, including more frequent reporting to DCBS and the Alaska Division of Insurance, and obtaining DCBS approval before awarding executive salary increases or bonuses. The document also. And it requires Moda to establish a bank deposit specifically designated for the benefit of the insurer’s Alaska policy holders.
Risk-based capital: A delicate balance, and the role of leadership at Moda
Across the U.S. – including in Oregon – some insurance companies have come under fire for putting too much capital in reserve. But Moda’s example shows the importance of having enough in the bank to withstand the unexpected.
Oregon Insurance Commissioner Laura Cali called it “a delicate balance,” when asked what regulators look for when examining insurance company capital levels.
“Our role, generally, is to protect consumers,” Cali said. “One of the very important ways we protect consumers is making sure insurers have enough money to protect their obligations. That’s not only paying claims. A lot of them have third-parties they owe money to for other reasons. If you don’t have enough to operate, the rest doesn’t matter. There is a balancing act, particularly from the public’s view, as to how much is too much, how much is too little. It’s something we are always monitoring.
“We always look at how much they can withstand when things break against them,” she continued.
And things definitely broke against Moda.
“Without getting into territory we aren’t allowed to get into, it’s well known that Moda lost a significant amount of money on its 2014 book of business, and was continuing to lose money on its 2015 book of business,” Allen said. “Almost every place that something could go for them or against them, it went against them, and that has affected their ability to weather these bad events.”
Asked if financial challenges at Moda reflect poor management or pure bad luck, Allen responded: “That’s difficult to say. Luck plays a part of it. Politics plays a part – with the risk corridor issue, you can ascribe that to presidential politics. On the other hand, they made some projections about their business that were different than what other players made, and they own that.”
Looking forward, Allen said he’s optimistic that close oversight and the consent plan between Moda and regulators in Oregon, Washington and Alaska will put the insurance company on a path to recovery – though that path may be a tricky one to navigate.
“On the very positive side, you have three different sets of regulatory eyes looking at this company,” Allen said. “One state or another may be able to see different pieces of the whole. That happened in the case of Alaska asking for some Alaska-specific information, and understanding there were implications for the wider company. On the other hand, instead of a one-way conversation, you have a three-way conversation, and that makes it more complicated.”
Correction: Several statements above were incorrectly attributed to Laura Cali instead of Patrick Allen, as a result of a transcription error. The article has been updated to correct the error.
