Financial Struggles Precipitated Health Insurers’ Merger

Oct. 06--For Flint-based insurance company HealthPlus of Michigan, its proposed merger into the much larger Health Alliance Plan (HAP) represents a shotgun marriage of financial necessity.

HealthPlus has been hemorrhaging money for the past two years and was placed under state financial supervision this winter because reserves dipped below the required threshold. The insurer reported losing $23.5 million in 2014 on $502 million in revenue, following an $11.1-million loss the prior year, according to state regulatory filings. Its deficit stood at $4.8 million.

In March, the Department of Insurance and Financial Services gave HealthPlus a deadline for finding an entity to partner with it and "infuse capital." On Friday, HealthPlus announced that it had found its willing partner in Detroit-based HAP. A due-diligence period for the deal is under way.

The merger -- if finalized -- follows HealthPlus's decision this spring to sell its Medicaid and MIChild contracts to Molina Healthcare of Michigan, which together represented 96,000 customers.

HealthPlus currently has 120,000 members.

In an interview Monday, HealthPlus spokeswoman Kathy Bilitzke said the insurer has had financial difficulties that were exacerbated by a recent influx of new individual-market insurance customers who spent more on health care than the insurance actuaries predicted.

"It was kind of the perfect storm," Bilitzke said.

Roughly 15,000 new customers signed up for a HealthPlus individual plan under the Affordable Care Act.

"With these new members, we did not really know anything about them," Bilitzke said, "So it was difficult for us to determine what we should charge them in order to make it a sustainable book of business."

"With those new members came higher cost and higher use. And when it should have flattened out...we didn't experience that." she said.

One quirk to the insurer's predicament is that HealthPlus, unlike HAP, Blue Cross Blue Shield and other Michigan insurance companies, did not sell its individual policies on the healthcare.gov marketplace.

Only policies sold via the market qualify for government subsidies under the Affordable Care Act. So HealthPlus's new customers would ostensibly have shouldered the full cost of their insurance premiums.

Earlier this year, Blue Cross Blue Shield cited strong pent-up demand for medical services among this newly insured middle-income population as a reason why it needed to raise premiums 11.4% for 2016.

Government subsidies will now increase to help cover those higher Blue Cross premiums.

For its part, HealthPlus received permission from state regulators to raise individual-market premiums nearly 36% in 2016. HealthPlus says it has cut its headcount this year by 227 employees through attrition, voluntary separation packages and layoffs.

Representatives for HealthPlus and HAP said they have not decided whether HealthPlus consumers would continue to receive insurance under HealthPlus once the merger is final, or whether they will instead receive a new HAP card in the mail.

"We recognize the power of the HealthPlus brand in the Flint market and we are still exploring our brand options," said HAP spokeswoman Susan Schwandt.

HAP has over 680,000 total members and reported over $1.75 billion in revenue last year. It had $9.1 million in underwriting losses, which it attributed to the high cost of some specialty drugs, such as the new Hepatitis C medications.

Contact JC Reindl: 313-222-6631 or [email protected]. Follow him on Twitter @JCReindl.

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