Friday Health Plans is shutting down after more states took action this week to halt its operations and as creditors refuse to front it more capital, the health insurance company announced Thursday.
Regulators in every state where the company operates–Colorado, Georgia, Nevada, New Mexico, North Carolina, Oklahoma and Texas–have barred Friday Health from taking on additional members due to its rocky finances.
"Friday has been unable to scale our financial infrastructure to match the pace of our growth and secure the additional capital required to run our business. While we are deeply disappointed, we agree with the decision of our state regulators that it is necessary to wind down Friday’s business operations over time," Friday Health Plans said in its statement. "We believe this action is in the best interest of our members. We deeply appreciate our employees for all their hard work and dedication to Friday and are grateful for their support as we manage this process."
Like Oscar Health and Bright Health Group, Friday Health aimed to disrupt the health insurance exchanges with new technology and lower-cost policies, making a bet that consumers were shifting away from job-based coverage and toward individual plans. Friday Health also sells health reimbursement arrangements that allow small employers to give tax-free subsidies that workers can use to buy plans on the exchanges.
The privately held company raised $306.1 million in venture capital and debt to support its operations, according to Crunchbase. Venture capital investors' interest in the industry reflects a misunderstanding about the profits insurers can generate, said David Anderson, a research associate at Duke University's Margolis Center for Health Policy.
“Insurance should fundamentally be a mostly boring business,” Anderson said. “Once you've put in the substantial [medical loss ratio] caps, the types of profit that VCs want to get on their investments aren’t there. You just don't have the margin.”
Exchange insurers must spend at least 80% of premiums on medical care or refund the difference, which essentially places a ceiling on profit margins from insurance sales.
Anderson said that like other venture-backed insurers, Friday Health underpriced its products to build market share. In its most recent funding announcement in May 2022, Friday Health reported employing 600 people and serving more than 330,000 members.
Friday Health focuses on the individual market, so the company's health plans likely are not attractive acquisition targets because of member churn, Anderson said.
The startup will wind down operations in Colorado after failing to secure additional funds from investors, the Colorado Division of Insurance announced in a news release Thursday. Friday Health’s exit from Colorado comes a day after Georgia regulators seized assets from its local subsidiary. The Georgia Office of the Commissioner of Insurance and Safety Fire Commissioner did not respond to a request for the receivership order. Texas regulators declared Friday Health insolvent in March.
“Friday’s problems are national–the company’s aggressive growth in other states around the country got ahead of their financing,” Colorado Insurance Commissioner Michael Conway said in the news release. “While Friday Health of Colorado has maintained the capital required by Colorado law, the problems in other states and with the parent company are now impacting the company here.”
Friday Health’s Colorado subsidiary held $24.8 million in cash at the end of 2022, according to state regulatory filings. The company needed to raise $60 million to $100 million to stay afloat in the state this year, Conway said in an interview. Colorado may place Friday Health under receivership, Conway said.
"In a world where we have a free market in the healthcare space, we have to let the insurers in that market make the business decisions that they think are sound, and sometimes those aren’t going to work out,” Conway said. “Our core goal is to get the company through the rest of this plan year.”
In Georgia, regulators ordered the company to close its policies next month. Friday Health's subsidiary in the state reported a $48.1 million shortfall last year after it recorded a $11.1 million net loss, according to state filings. Georgia will enact a special enrollment period for Friday Health’s more than 35,000 enrollees, who will have to sign up for new coverage.
