The Texas Department of Insurance has placed Friday Health Plans under receivership after the health insurance company declared insolvency.
The Lone Star State’s insurance commissioner has seized the Friday Health Plans’ assets and is charged with liquidating its local property, technology, bank accounts and other valuables to pay outstanding claims, according to a liquidation order issued Thursday.
Creditors are barred from recouping money Friday Health owes them, and the insurer must stop selling policies in Texas, the order says. Friday Health’s board of directors declared the Texas subsidiary insolvent on March 14, according to the insurance department.
Friday Health’s Texas division ended the year with a $244.4 million shortfall, according to financial filings. The company’s operations in the six other states where it sells on the health insurance exchanges are unaffected by the Texas liquidation order, a Friday Health spokesperson wrote in an email.
Like other health insurance startups, Friday Health launched in 2015 to jump into the health insurance exchange marketplaces, making a bet that the market was shifting away from employer-sponsored health plans and toward individual policies. Friday Health also markets health reimbursement arrangements that allow small employers to provide tax-free subsidies that workers can use to buy coverage on the exchanges.
The privately held company raised $306.1 million in venture capital and debt to support its operations, according to Crunchbase. In its most recent funding announcement last May, Friday Health reported employing 600 people and serving more than 330,000 members, which was nearly three times as many as insurtechs Alignment Healthcare and Clover Health. At the time, Friday Health estimated it would generate $1.95 billion in revenue in 2022.
Other states are now watching how Texas regulators unwind Friday Health’s operations.
The Georgia Office of Insurance and Safety Fire Commissioner is aware of the liquidation proceedings in Texas and is working with other states to closely monitor the situation, a spokesperson wrote in an email. Friday Health ended the year with a $5.9 million shortfall in the Peach State, according to a financial filing.
The Nevada Division of Insurance likewise is following the activity in Texas, a spokesperson wrote in an email.
Regulators in Colorado, New Mexico, North Carolina and Oklahoma did not respond to interview requests.
Friday Health’s failure in Texas will burden other health insurance companies there. According to Friday Health, rival insurers will have to cover the cost of its unpaid cliams through the state’s guarantee association.
The Texas Department of Insurance did not respond to a request for information about the scale of Friday Health’s outstanding claims.
Friday Health’s financial position could also impact the exchanges’ federal risk-adjustment payment program, which requires insurers that cover relatively healthy policyholders to transfer money to carriers with costlier members. The Centers for Medicare and Medicaid Services is still calculating how much insurers will pay or receive for the 2022 plan year; risk-adjustment payments are due in August.
Friday Health estimates it will owe $535.9 million in risk-adjustment payments to other Texas insurers for 2022. If it were unable to pay in full, other local insurers would get less than expected, said Ari Gottlieb, an independent healthcare consultant at A2 Strategy Group.
“We don’t know how much other health insurers that are due a risk adjustment payable are going to take a hit and what the consequences of that are,” Gottlieb said. “Some of these insurers are not large companies.”
The shaky financial conditions of health insurance startups exacerbate the risk for other carriers, Gottlieb said. Bright Health Group, for example, estimates it will owe a $723 million in risk-adjustment payments to other Texas insurers for last year, according to financial filings. But the company is pursuing a reverse stock split to stay solvent and has reported a financial shortfall in Texas. Oscar Health, which announced a new CEO Tuesday, expects to owe $1.5 billion in risk-adjustment payments across multiple states including in Texas, according to financial filings.
Questions about whether these insurers can meet their obligations underscore the need for greater state oversight, Gottlieb said. Regulators should confirm that insurers hold enough cash to survive the year before allowing them to sell policies to more consumers, he said. State officials should also review premiums to ensure carriers are not underpricing, he said.
“We’re not at the end of this story, but we’re getting close to the end,” Gottlieb said. “This is the culmination of the irrational pricing and hypergrowth in the individual markets model, which doesn’t work. Friday is just the first insurer to fall.”