Less than two weeks after Zoom Health Plan Inc. announced it would bring an end to its short-lived health insurance plan, the regulators who descended to oversee that company’s exit are suing over the company’s financial management, and seeking to recover $3 million from a related business.
Oregon’s Department of Consumer and Business Services claims in litigation filed Tuesday in Marion County Circuit Court that Zoom Management Inc. -- a company affiliated with the health insurer -- did not pay $3 million to bolster Zoom Health Plan’s capital levels, despite telling regulators that it had done so in 2016.
“This funding is critical for Zoom Health Plan to meet its obligations to policyholders,” Patrick Allen, director of DCBS, said in a statement.
In its annual financial report, Zoom Health Plan told regulators that its capital and surplus levels at the end of 2016 were $2,873,168. But without cash from the $3 million surplus note, regulators contend that the plan’s cash balance was actually negative $126,832, and that the health plan was therefore insolvent.
In an interview with The Lund Report, Zoom spokesman Len Bergstein walked the line between offering assurances that the insurance company is in good enough financial health, and showing respect for state regulators who continue to review the company’s books even as they litigate.
“We have a thousand bodies, a thousand lives, and we have $9 million in the bank,” Bergstein said. “We are a fully funded, stable insurer, for the purposes of the plan that we had, and the winding down of that plan in an orderly fashion.”
His statements about Zoom’s financial stability seemed to center around its available cash, whereas state regulators have raised concerns about Zoom Health Plan’s capital -- a closely related accounting measure that gives a slightly different look at its balance sheet.
He declined to go into specifics about the details of the state’s complaint, citing ongoing litigation.
“We’re better off out of the insurance business, and concentrating on the delivery side,” Bergstein said, noting that the Zoom Plus network of health providers served 250,000 people last year -- compared to about 1,000 enrolled in its sister company’s health plan.
Zoom Blames Politics and Risk Adjustments
Bergstein largely pinned Zoom Health Plan’s impending demise on the uncertainty that Donald Trump’s administration has brought to the health insurance industry. But he also noted that the insurance company has faced obstacles that its sister business, Zoom Plus, has not had to surmount.
“We lost some money the first couple years, however we thought that in the context of the ACA and likely reforms that might occur under the administration that would be elected in 2016, there was hope that the stability of the system and the flexibility of the system could allow an innovative company like us to survive with both a delivery system and an insurer,” Bergstein said.
“That didn’t happen,” he continued. “The person everybody expected didn’t get elected. The person who did get elected was unable, even in the beginning, to provide stability, and Congress was unable to repeal and replace. We took a look at that and said, wow, it’s going to take a while before there is real stability in the marketplace, from a national healthcare policy point of view. For a young, cash-short company with a thousand bodies insured or so, this is not the marketplace for us to be. Too risky.”
Regulations surrounding risk adjustments, which Bergstein called “complicated and arcane” contributed to the capital gap at Zoom.
“The federal government, as part of the ACA and other related policies, has told insurers that we are going to charge you a certain amount, after we asses the risk of your policy base, to claw back certain amounts of money and adjust risk across the whole system,” he said. “The federal policy is to try to adjust that -- do Robin Hood kind of stuff. Take from one, give to the other. Overnight, you could have a balance sheet that is very healthy, and the federal government says, not so fast. We’re going to take millions of dollars of the premiums you received.”
Rick adjustments have also affected other Oregon insurers -- though from the other end of the equation. Moda Health significantly scaled back, and Oregon’s Health CO-OP and Health Republic both fully exited Oregon’s market, in each case after Congress cut the federal subsidy for risk corridors.
State and Zoom see Finances Differently
In the complaint filed in state court against Zoom Management, a related company that provided administrative services for Zoom Health Plan, the Department of Business and Consumer Services laid out its case, writing: "Plaintiff brings this action on ZHP's behalf to recover $3 million in capital funding that ZHP represented in its most recent financial statement that it had received from Defendant in exchange for a surplus promissory note. ZHP in fact never received any of the the $3 million in funding that was supposed to be provided in exchange for the note, rendering ZHP insolvent and making the company's financial statement materially misleading."
The state is suing Zoom Management to have those funds paid to the health plan, as disclosed on financial statements.
Though Bergstein declined to discuss the legal dispute, he characterized the nature of the financial situation differently.
“We got a notification from the federal government that ways, we are going to take about this much risk adjustment from you, and then our accountants, actuaries and theirs, talk. We think as we talk, it will go down again. It wasn’t an actual bill they were sending us, they were sending us a statement that was going to come due as soon as all the numbers squared up. We took that and set aside an instrument that would deal with that amount until they said, ‘Ok, now you owe this, and then there you go,’” he said. “The state said, as soon as they said, ‘X million dollars,’ you should have immediately accounted for that and put in a lock box. That’s the discrepancy.”
All current Zoom Health Plan individual policies will be canceled effective Dec. 31, 2017. Group policies will expire at different times, depending on their renewal dates, according to the state Department of Consumer and Business Services. The department said is continuing to evaluate Zoom Health Plan's financial condition as well as investigating the misleading information in ZoomHealth Plan's financial statement and whether it warrants further action.
Reach Courtney Sherwood at [email protected].