AM Best Revises Outlooks to Negative for UPMC Health Plan, Inc., Its Affiliates and Members of UPMC Workers’ Compensation Group; Affirms Credit Ratings

Business Wire

OLDWICK, N.J.--(BUSINESS WIRE)--
AM Best has revised the outlooks to negative from stable and affirmed the Financial Strength Rating (FSR) of A- (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICRs) of “a-” (Excellent) of UPMC Health Plan, Inc. and its affiliates: UPMC For You, Inc., UPMC Health Network, Inc., UPMC Health Coverage, Inc., UPMC Health Options, Inc. and Community Care Behavioral Health Organization. Collectively, the group is referred to as UPMC Health Insurance Group (UPMC Health Plans).

Concurrently, AM Best has revised the outlooks to negative from stable and affirmed the FSR of A- (Excellent) and the Long-Term ICRs of “a-” (Excellent) of WorkPartners National, Inc., UPMC Health Benefits Inc. and UPMC Work Alliance, Inc., which primarily offer workers’ compensation products. These companies collectively are referred to as UPMC Workers’ Compensation Group. All companies are headquartered in Pittsburgh, PA.

The Credit Ratings (ratings) of UPMC Health Plans reflect the group’s balance sheet strength, which AM Best assesses as adequate, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management (ERM).

UPMC Health Plans’ risk-adjusted capitalization remained assessed as weak at year-end 2023, as measured by Best’s Capital Adequacy Ratio (BCAR). UPMC Health Plans’ capital and surplus grew at a five-year compounded annual growth rate of approximately 15.6% prior to 2023; however, due to the combination of sizeable dividends and operating losses in 2024, capital was flat at year-end 2023 and has seen a significant decline through third-quarter 2024. Capital contributions to the health insurance subsidiaries over the past few years were to support growth, and further contributions are expected before year-end 2024 that AM Best anticipates will result in a modest improvement of the group’s BCAR, although the BCAR still will remain weak overall. Premium leverage remains high at approximately 6.5 times in 2023.

UPMC Health Plans maintains favorable financial flexibility through its ultimate parent, UPMC, where they have access to a $600 million line of credit providing additional financial and operational flexibility. UPMC Health Plans also maintains a relatively conservative and high-quality investment portfolio, with a focus on liquidity, as it has allocated approximately one-third of invested assets in cash and short-term investments in recent years. Over the past five years, the group has exhibited continued favorable liquidity ratios ranging above 200%.

AM Best assesses UPMC Health Plans’ operating performance as adequate based upon its continued profitability and steady premium growth. UPMC Health Plans’ net premium has grown each year in the most recent five-year period with a 11.3% compound annual growth rate. Increased membership across a majority of its products contributed to premium growth, with a significant portion of growth coming from the Medicaid line of business. Medicaid revenue has a five-year growth rate of 27% due to state-wide expansion and organic growth. In addition, revenue retention rates of 97.7% and 96.0% for Medicare Advantage and special needs plans, respectively, and membership growth were supported by expansion and organic growth. Continuation of premium growth through the first nine months of 2024 was mainly through the group’s government businesses.

Underwriting results, although favorable, decreased in 2023 and five-year underwriting results fluctuated, largely due to the effects of the competitive market conditions and challenging individual market. While results have been very favorable, volatility has created large swings in profitability and earnings concentration in certain lines of business, especially in the government businesses.

Factors recently impacting overall operating results include increases in medical and pharmaceutical trends, including GLP-1s and increased utilization, somewhat offset by favorable administrative expenses due to numerous expense initiatives. UPMC Health Plans is in the process of a strategic restructuring, which is expected to help the group further reduce costs, enhance revenue optimization and with business expansion, all in an effort to significantly improve margins over the 2025-2026 period.

However, the government programs business segments have been impacted negatively this year – as has been an industry-wide trend. Challenges in the Medicaid business have been a main driver of losses in 2024, as disenrolls mainly related to redeterminations have reduced membership and premium revenues, as well as resulting in a higher acuity risk-pool of the retained members. These challenges have impacted not only UPMC for You, Inc., but also Community Health Choices, affecting the Medicaid and dual-eligible businesses. UPMC Health Plans expects to increase enrollment with 2025 rate increases having an immediate impact on improving operating results in these businesses.

The Medicare Advantage business remains very competitive, and this has resulted in significant pricing pressure on insurers to provide low- or no-premium products. Operating results have also been impacted by Medicare Advantage losses, related to issues such as pharmaceutical costs, increased acuity post-COVID as well as coding issues and risk-adjustment payments. The company also will be impacted by a Premium Deficiency Reserve being set in fourth-quarter 2024, which is contributing to the negative results.

UPMC Health Plans has favorable brand recognition in its respective markets and maintains a solid market share with profitable operations. The parent company, UPMC, is a well-known and nationally recognized health system. UPMC Health maintains high quality metrics with the National Committee for Quality Assurance (NCQA) and Medicare Star quality program, which also contributes to additional revenues for the group’s government business. UPMC is an integrated global health enterprise leveraging medical expertise, geographic reach and financial stability and comprises nonprofit and for-profit entities offering medical and health care-related services, including health insurance products. UPMC Health Plans has expanded its presence in Pennsylvania beyond the western parts of the state.

The ratings of UPMC Workers’ Compensation Group reflect its balance sheet strength, which AM Best assesses as strong, as well as its adequate operating performance, limited business profile and appropriate ERM. The negative outlooks being placed on UPMC Workers’ Compensation Group are due to declining risk-adjusted capital at the lead rating unit, UPMC Health Plans, which could negatively affect the balance sheet assessment for UPMC Health Plans. Should this not improve, the lift afforded to the group would be negatively impacted. AM Best expects that UPMC Workers’ Compensation Group will maintain its strong balance sheet strength assessment, supported by its profitable earnings and by its parent company, as well as continued stability in reserves. Operating performance is expected to remain adequate over the intermediate term, contributing to continued surplus growth.

This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best's Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.