Health insurance companies will lose $1.1 billion in expected exchange risk-adjustment payments this year because two troubled companies can't make good on their obligations, the Centers for Medicare and Medicaid Services disclosed Friday.
Financially struggling Bright Health Group is short $380.2 million owed to exchange carriers in Alabama, Colorado, Florida, Illinois, Nebraska, Texas, Oklahoma, Utah and Virginia, CMS wrote in a notice. Bankrupt Friday Health Plans owes $741 million to insurers in Colorado, Georgia, Nevada, New Mexico, North Carolina, Oklahoma and Texas. Bright Health and Friday Health are the sole insurers unable to contribute to the $9.24 billion risk-adjustment program this year.
Florida and Texas insurers will suffer the biggest risk-adjustment payment losses. Some insurers have reported the shortfalls as material to their operations.
Bright Health did not immediately respond to an interview request and Modern Healthcare was unable to contact Friday Health. Several states declared Friday Health insolvent and ordered the company into receivership this year.
CMS launched the risk-adjustment program in 2014 to dissuade carriers from cherry-picking young and healthy enrollees and to stabilize premiums on the health insurance exchanges. The program requires companies that cover less expensive members to contribute money that CMS then allocates to companies with sicker risk pools. Payments were due last month and CMS will distribute the funds in November.
Because Friday Health is bankrupt, CMS will “pursue all federal debt collection methods available, including offsetting other ACA program payments” to help insurers get paid, the agency wrote in the notice.
In Bright Health’s case, CMS worked with eight states to develop a repayment plan that charges the company 11.5% monthly interest on the $380.2 million owed and gives it until March 2025 to make good.
Florida will only charge Bright Health $1,000 per month, which is lower than the 11.5% interest rate, CMS said. The Florida Office of Insurance Regulation did not immediately respond to an interview request about why they agreed to different repayment terms. The state extended its supervisory order of Bright Health for the seventh time on Friday, requiring the company to receive approval for any spending over $10,000.
The Treasury Department will retain the interest Bright Health pays. If the company declares bankruptcy before paying the lump sum, the Treasury Department will not pay back the interest collected to other insurance companies, CMS said. The agency anticipates Bright Health won’t make the $380.2 million payment before the deadline.
Bright Health continues to operate two Medicare Advantage plans in California and a chain of 74 primary care clinics in Texas and Florida. The company also participates in the Accountable Care Organization Realizing Equity, Access and Community Health program, better known as ACO REACH. Bright Health is selling its Medicare Advantage business to Molina Healthcare for $600 million and plans to use the proceeds to repay creditors.
CMS should have required Bright Health to prioritize using the proceeds from the Molina deal to make risk-adjustment payments, said Ari Gottlieb, an independent consultant at A2 Strategy Group. The agency could also have garnished Bright Health’s Medicare Advantage or ACO REACH payments and states could have taken action to prevent this scenario, he said.
“How can you default on CMS and still be allowed to participate in other public health programs?” Gottlieb asked. “This is money insurers were counting on and now they’re not going to be getting it for 18 months. Let’s be honest, they may never get it.”
Centene, the largest exchange carrier with 3.7 enrollees, anticipates at least a $323 million shortfall in risk-adjustment funds, Chief Financial Officer Drew Asher said during the company’s third-quarter earnings call Tuesday.
Molina Healthcare, which has 276,000 marketplace members, reported a $41 million shortfall in Texas during the third quarter because of Friday Health's bankruptcy. “We will continue to pursue all regulatory paths to collecting the full receivable due to us,” Chief Financial Officer Mark Keim said during the company's third-quarter earnings call Thursday.