An insurer failure aftermath

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.

Last week, Family Health Hawaii (FHH) was ordered into immediate liquidation.

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.


19 replies
  1. 1
    Steeplejack (phone) says:

    @Richard Mayhew:

    Maybe should be “aftermath” in the title?

  2. 2

    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.

    What happens after an insurer fails?

    My prediction is that it gets blamed on PPACA whether there’s any evidence for that or not. If the people who hated Obamacare could be convinced by evidence, they would have given up most of their objections to it already, since they’ve been clearly disproved by the evidence.

  3. 3
    Gin & Tonic says:

    @Steeplejack (phone): To add to the pedantry quotient in this thread, the state-mandated insolvency funds that Richard refers to as “guarantee funds” are actually “guaranty funds.” The reasons for this spelling escape me, but there it is.

  4. 4
    Yutsano says:

    Interesting thought: if any state should try for a single payer system it’s Hawai’i. It does have a heterogeneous population but it’s been minority majority its entire existence plus it passed one of the first insurance mandates way before ACA so it was on the way there already. I imagine someone is working on it but I wonder what the progress is.

  5. 5
    MattF says:

    Has there been any information about why FHH failed? With 420 employer group plans, one would think that underwriting would be immune to plain old bad luck.

  6. 6
    The Republic, Blah Blah Blah... says:

    @Roger Moore: I was just about to make the same point and I see you got there first… this’ll probably be all over Fox by the end of the day and it’ll all be Obama’s fault…

  7. 7
    Sister Machine Gun of Quiet Harmony says:

    His name is really Commissioner Gordon? LOL

  8. 8
    sherparick says:

    @Roger Moore: Correct. That’s why the joke “Thanks Obama” has gone from ironic to cliche in a year’s time. Everything that has gone wrong since Saint Ronnie’s election in 1981 is either Obama’s or Hillary’s fault.

    P.S. Probably should post on the next open or Betty Cracker post, but have to connect this link to a new “Peak Florida” man moment:

  9. 9
    Highway Rob says:

    @Sister Machine Gun of Quiet Harmony: Came here to make sure this comment existed, or something like it. Leaving satisfied.

  10. 10
    MattF says:

    @sherparick: Well, if you have an alligator in the passenger seat, you can’t just leave it there.

  11. 11
    Gin & Tonic says:

    @Sister Machine Gun of Quiet Harmony: His surname is Ito, so this may not be as funny as you’d hoped.

  12. 12
    PST says:

    Some of the news stories refer to FHH as the smallest health insurer in the state, with about 7,000 members. I’m glad it isn’t more. If it has 420 groups, then many of them must be mom and pop operations. Interestingly, its web site brags of having a huge network, with every hospital and almost every doctor in the state, as well as coverage for other states. So it could not have been competing on price. One of the officers was .quoted as saying that the company failed in large part because of groups that had big claims and then switched to another carrier. Hawaii has long mandated employer coverage, and there are other aspects of its system that have similarities to the ACA. I suspect there are some lessons to be learned by digging into the causes. There is no reason to let contempt for the “Thanks Obama” crowd deter anyone from doing so.

  13. 13
    NotMax says:

    Using the solar system as an analogy, for non-Medicaid, non-military healthcare in Hawaii HMSA is Jupiter, Kaiser is Saturn and anyone else gets to scrap over the remaining extraneous chunks of matter.

  14. 14
    Kylroy says:

    @Gin & Tonic: On the contrary, if he’s ever been a judge…

  15. 15
    Sister Machine Gun of Quiet Harmony says:

    @Gin & Tonic: This just means we need Loa to step up to the plate and become the Hawaiian mutant Batwoman.

  16. 16
    amygdala says:

    @Yutsano: Hawaii has had near-universal coverage for decades, thanks to a state law dating back to 1975.

    Health status among Native Hawaiians lags national means. Obesity and alcohol and tobacco use account for some of this, presumably. But health status for the state overall compares favorably to the rest of the country.

    There are coverage issues, especially on the outer islands. I have relatives who live there and illness requiring critical care means a flight to Honolulu, and some patients can’t safely make the journey. Even in Honolulu, which has some very good hospitals, there may not be access to highly specialized care. Some west coast tertiary centers have developed referral networks from Hawaii.

  17. 17
    waynski says:

    @Gin & Tonic: Sorry. Still funny. Maybe he can light up the bat signal to save Hawaii’s insurance system.

  18. 18
    Yutsano says:

    @amygdala: That’s one of the reasons why I specifically mentioned them. Hawai’i has been on a course to cover nearly everyone for decades. They expanded Medicaid under ACA. Why not just go ahead and get the last few stragglers who aren’t covered under the several programs available?

    Full disclosure: I was born in Honolulu. I tend to keep up with happenings back in my birth state although I’ve been slacking lately.

  19. 19
    amygdala says:

    @Yutsano: @Yutsano: I remember reading somewhere, and now I can’t find it, that Hawaii was trailing some strategies under the ACA that leveraged off their longstanding broader coverage. It’s a good thing about the ACA that it encourages this sort of local adaptation. It almost makes up for the cluster*ck of mandatory EHR. Almost.

    Not sure if there are data as to who the stragglers are. I’m guessing even Hawaii has at least a few folks who will just refuse to enroll, in the interest of fighting the man. And some may be people who overstayed a tourist visa or another situation which means they’re not in the country legally. Some cities have local programs that cover noncitizens/permanent residents, but I’m not sure about Hawaii.

    Not Hawaii-specific, but folks who don’t seek medical attention sometimes aren’t aware they’re eligible for Medicaid or other coverage. I used to see this at my hospital. It can kind of feed on itself where thinking that they can’t pay for care, they don’t get it until a major illness forces a hospitalization. Then the hospital would get them set up (in order to get paid!). And one of our jobs was to get them plugged in with outpatient care and try to make sure they knew how to use it.

    Looking at my ACA forms while getting my tax paperwork together, I wondered if that might eventually provide a way to catch some of the stragglers. And maybe we should also be looking at countries that use insurance mandates to achieve broad coverage, to see how they close they get and who people who fall through the cracks are.

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