Best’s Special Report: U.S. Life/Health Impairments Up in 2016 as Affordable Care Act Co-Op Plans Continue to Struggle

OLDWICK, N.J.--(BUSINESS WIRE)-- Of the 11 U.S. life/health impairments recorded in 2016, nine were recently formed consumer operated and oriented plans, known as co-ops, formed under the Affordable Care Act (ACA), according to a new A.M. Best special report.

The Best’s Special Report, titled, “2016 Life/Health Impairments Update,” states that over a 17-year period from 2000-2016, 155 life/health insurers became impaired. Of these 155 impairments, 72% were accident and health or health insurers, while 15% were small life insurers primarily focused on selling lower policy value industrial/burial or stipulated premium business in the southern United States. The remaining 13% were fraternal entities, annuity writers and other life or combined life, annuity and health businesses.

A.M. Best defines impairments as being situations in which a company has been placed, via court order, into conservation, rehabilitation and/or insolvent liquidation. Supervisory actions undertaken by insurance department regulators without court order were not considered impairments for this study unless delays or limitations were placed on policyholder payments.

Specific causal factors were identified for 50 of the impairments. The significant challenge of operating as a qualified nonprofit health insurance issuer under ACA was the leading specific cause and was present in 16 of the impairments. Fraud or alleged fraud was present in nine of the impairments, while eight impairments were caused at least in part by significant investment losses. Six companies ran into difficulty after experiencing rapid growth, eight were undone by affiliate problems, and one became impaired after reinsurance failure. One impairment resulted from large claim overpayments due to system errors, and one other impairment involved a mortgage lender that failed after an unlicensed push into fixed rate annuity products.

There were 86 health insurer impairments during the study period. Of these, 76 occurred in companies doing business in one state while another five wrote in two to five states. Other than the nine co-op impairments, a Hawaii-based health insurer and a New York-based accident and health insurer represented the remaining impairments of 2016. Six of the seven health insurer impairments in 2015 also were co-ops. The 11 impairments in 2016 were the most life/health impairments since 12 were reported in 2009.

To access a copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=268721.

To access a copy of the property/casualty impairments special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=268718.

A.M. Best is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

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Source: A.M. Best