There is an interesting story out of Hawaii about an insurer failing. The interesting thing is that the insurer was not on the Exchanges at all so the odds of this failure being PPACA related are minimal.
The Order allows Insurance Commissioner Gordon Ito to take possession of the organization’s assets, books, records, and to assume the roles of FHH’s directors and officers. This comes after 2015 filings showed that FHH did not meet statutory solvency requirements which include maintaining minimum net worth to ensure that they are able to meet their obligations. Despite work with the state’s examination team, FHH was not able to show that they would make up the loss and regain solid standing.
While the organization does not provide individual plans, FHH currently insures approximately 420 employer group plans. All policies must be terminated by May 6, 2016
What happens after an insurer fails?
An insurer should have enough reserves to cover any and all expenses on the day that premiums stop being collected. That evidently is not the case for Family Health Hawaii. A few things will happen. Business as usual will occur until May 6th. After that coverage stops. Claims for services that were performed before May 6th but received after the drop dead date go into limbo. They will be paid out of reserves. Anything that is unpaid after reserves are exhausted are left hanging in the air. Some states have guarantee funds where all insurers in a state pay in to cover the remaining claims after reserve exhaustion from a failed insurer. Other states will have the providers eat the difference or take a haircut.
Providers theoretically will get paid in full as long as the claim arrives by May 6th. However most providers will seek to minimize their potential exposure by aggressively avoiding FHH patients for the next three weeks. People who have deferable appointments will see their appointments cancelled. People who have elective surgery scheduled will see their surgery pushed to June or July. Most doctor offices and hospitals’ finance departments are scrambling to get every claim attached to a FHH member submitted as soon as possible so that they can get as close to the front of the line as possible.
People will see a Special Enrollment Period triggered on May 7th as they will have lost their previously qualified insurance coverage. Some of the other Hawaiian insurers will write half year policies for the employer groups but there will be people who fall through the gaps. SHOP might be a good landing spot for seven months until the next annual enrollment cycle starts up again.