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Not-for-profit health insurer gets $10M cash infusion

Copyright © 2017 Albuquerque Journal

A state regulator has approved a $10 million sale by New Mexico Health Connections of its commercial business to one of its vendors, providing an infusion of cash to one of the last not-for-profit health insurance cooperatives in the country.

The approval came despite concerns raised by Presbyterian, University of New Mexico and Blue Cross Blue Shield about the continued financial condition of Health Connections and whether it could make good on millions of dollars of what they say are unpaid bills.

In testimony filed in the case, Presbyterian questioned whether Health Connections was solvent and raised the possibility that providers might have to try to collect from people insured by Health Connections.

That testimony was based on a sale price of $10 million – the amount that had been announced and included in the regulatory approval order.

The Journal, meanwhile, has learned that Health Connections has been under financial supervision by the state’s superintendent of insurance since June.

Under the terms of the agreement approved Wednesday, Evolent Health, a publicly traded Arlington, Va.-based company that has managed aspects of Health Connections’ plan administration, will acquire Health Connections’ small- and large-group business lines. The acquisition will give rise to a new for-profit entity called True Health New Mexico.

In addition to the $10 million sale price, Evolent will also provide an additional $10 million to True Health.

The additional $10 million was not addressed in the testimony of Presbyterian, Blue Cross and UNM.

Few not-for-profits

As of Jan. 1, Health Connections’ 22,000 employer-based plan members, provider network contracts, executive leadership team and about 80 employees will transition to True Health New Mexico. The additional 18,000 members insured under the Affordable Care Act will continue to be insured through Health Connections. CEO Martin Hickey will lead True Health, and Marlene Baca, a former Lovelace Health Plan executive who now runs a consulting firm, will take his place at Health Connections.

In a final order and decision released Wednesday, the state Office of Superintendent of Insurance adopted the recommendations of the case’s hearing officer. Superintendent of Insurance John G. Franchini, who disclosed that Health Connections has been under “financial supervision” since June, also said that Evolent will assume 50 percent of Health Connections’ liabilities for two years.

“It’s a private agreement, but I felt like it was important for the public to know,” Franchini said in a Journal interview. “We are one of only a few states with this type of co-op, and we’re very happy it will continue in New Mexico.”

Health Connections, which was funded by federal loans through the Affordable Care Act, is one of four not-for-profit health insurance cooperatives still operating in the U.S. There were 23 such entities as of 2014.

According to documents reviewed by the Journal, some of New Mexico’s biggest health care players questioned Health Connections’ financial dealings in testimony submitted during consideration of the deal.

Among the accusations lodged against the organization: Various University of New Mexico health entities allege Health Connections owes $20 million for outpatient and other services; Presbyterian Healthcare Services says Health Connections owes it $7.6 million; Blue Cross Blue Shield of New Mexico said Health Connections will likely owe it several million dollars in an annual “risk adjustment liability” mandated by the federal government.

UNM suggested that the $10 million – what had been disclosed as the sum involved in the transaction – be placed in an escrow account “as a source of payment for the creditors’ claims.”

Health Connections has filed a lawsuit against the U.S. Department of Health and Human Services and the Centers for Medicare & Medicaid Services disputing the risk adjustment. Hickey said he was unfamiliar with the testimony citing the other accusations, but he suggested they were attempts to undermine a competitor.

Solvency doubted

In his recommendations, the state’s hearing officer wrote that the allegations did not suggest a financial situation that would jeopardize the stability of True Health. But he also said the “important and helpful information would assist OSI in its ongoing customary regulatory oversight of (Health Connections) and True Health.”

Under New Mexico law, if an insurer’s financial data indicate that its risk-based capital – a calculation of the minimum amount of money an insurer needs to operate – is less than 70 percent, the state must take it over in a process called “mandatory control.” According to Health Connections’ Sept. 30 financial filings obtained by the Journal, the organization’s total capital and surplus were $3.5 million, which Presbyterian claimed was below the 70 percent threshold and indicated that Health Connections was insolvent. The $3.5 million number included the $10 million portion of the deal with Evolent, which at that time had not been approved; without it, the figure would be negative $6.5 million.

Health Connections was operating at a $10 million loss this year as of September, according to the filings. The company had losses totaling more $40 million over the previous two years.

Its board has also had complete turnover since that time, which a spokeswoman said was related to the election cycle of the seats.

Hickey did not dispute the figures raised by Presbyterian but called its conclusion “pure speculation.” He did not disclose the liability agreement.

“There’s a lot that’s happened between September and now, a lot that people don’t know about,” he said. “When the March 15 filing comes out, you’ll see that we meet all our regulatory requirements.”

Hickey acknowledged it was “possible” that the finances of the organization could be affected in the future by this week’s repeal of the individual mandate, the part of the Affordable Care Act that requires individuals to obtain health insurance. The Congressional Budget Office estimates that the repeal will lead to an additional 13 million uninsured individuals over the next decade.

When pressed about the future of Health Connections, Hickey cited a quote often attributed to Mark Twain: “The reports of my death are greatly exaggerated.”