The Oral History of WINhealth’s fall into receivership

By Tom Lacock
Wyoming Medical Society

Nearly nine months after it officially entered a rehabilitation receivership, the question of WINhealth and what led to its demise has been discussed in physician lounges and board rooms around the state.

On Oct. 21, State Insurance Commissioner Tom Glause filed a rehabilitation receivership petition in district court in hopes that a cash infusion or a buyer could be found for the ailing insurance company. In January, after a buyer could not be found, WINhealth was ordered into liquidation by Laramie County District Court Judge Thomas Campbell. Once it was put into liquidation, the assets were put into the Wyoming Life and Health Liquidation.

This spring, WMS sat down to talk individually with some of the major players involved in the last year of WINhealth’s life. Ultimately, all parties agreed it was a matter of rapid growth and a lack of cash reserves to support a population with more pent-up demand for medical services than anyone saw coming. The WMS now presents the Oral History of WINhealth’s fall into Receivership.

The First Act – Venturing Into The ACA

Stephen Goldstone, former CEO of WINhealth:  WINhealth went into the individual healthcare exchange knowing that it was a significant risk. However, WINhealth throughout its history had always struggled to grow and in some sense struggled to gain relevance and that was important to us, because without people taking WINhealth seriously we weren’t able to get providers to contract with us. It was a circular thought process. In order to grow we needed to have a stronger provider network. In order to have a stronger provider network we needed to grow. The exchange offered us that opportunity.

When we set our initial premiums on the ACA’s Health Insurance Exchange we did so thinking we had been relatively conservative and based on the best information we had at the time. As it turned out, we were underpriced in relationship to Blue Cross. What that did was generate enrollment that significantly exceeded our expectations. We had expected to add 6,000 members the first year of the exchange and instead we added about 9,000 members. That was a short-lived victory because many of those members had more significant healthcare needs than any of us could have predicted, coupled with continual changes in the rules in the exchange. It put us at risk almost from the get-go.

Tom Glause, Wyoming State Insurance Commissioner: WINhealth nearly tripled in size in two years. But I really don’t look at the Affordable Care Act (ACA) as the root cause of WINhealth demise. I come back to the two most common causes of insurance company failure: rapid growth and inadequate capital. The way the Risk Based Capital (RBC) is determined, the more members you have, the more risk you have, the more capital you need. So pre-ACA, when WIN had 5,000 members and $8 million in surplus capital, they had a pretty good RBC. But as you grow 10,000 new members into the equation, that $8 million is diluted pretty quickly. I think that it would have taken probably $20 million in surplus to make WINhealth viable.

Goldstone: WINhealth was a not-for-profit organization and had very limited ability to raise money. The two entities that sponsored WINhealth – Cheyenne Regional Medical Center and Southeast Wyoming Preferred Physicians – weren’t willing or able to deploy additional cash. Then the hospital announced it wanted to divest its interest in WINhealth.

Glause: Coming into my tenure as insurance commissioner (which began Jan. 3, 2015), we were watching and monitoring WINhealth closely. My predecessor had required that WIN file monthly financial statements. I was aware of that and we were monitoring the situation closely from the first day I came in. Once we got through the Legislative session and I got my feet wet to where I could really focus on them more, we began requiring a weekly conference with them to assess where they were in their cash flow position.

Goldstone: There was a confluence of events that conspired collectively to create the situation that we were faced with. Once the government announced they were only going to pay 12.6 percent of the risk corridor payments, that was the final nail in the coffin.

There are three R’s of the ACA the government put into place. There is the transitional reinsurance, the risk adjustment and the risk corridor. We had no idea how much we were owed under the risk adjustment, and in June 2015 we were told we would be paid $13.5 million for reinsurance. But (later) we were told by the government we owed $6 million in the risk adjustment. That money was transferred to Blue Cross because Blue Cross’s population was sicker than our population.

The second shock was late in September, when we were informed that the government was going to pay just 12.6 percent of the $5.5 million we were owed. So the first shock came in June 2015 and that really tasked us with a sense of anxiety at that point. Clearly, we knew we were going to struggle from a cash flow perspective. And then the final shock took place in late September or early October when we were told we would collect 12.6 percent for the risk corridor payment. At that point it wasn’t doom, it was reality. At that point the insurance commissioner had no choice but to take action.

Glause: There was hope, but the CEO, Goldstone, came to the terms pretty quick that there were three options for WINhealth. One was to liquidate it. Two was to find a buyer, or three was to find a large capital infusion, which was unlikely. The hospital, Cheyenne Regional, did loan them $6 million in June and had they not loaned them the money we would have been dealing with this sooner. Fortunately for everyone we were able to get it to the end of the year and transfer most of these lives during open enrollment.

Goldstone: We had contacted a buyer. We had an organization that was very interested and they were a start-up company in the process of raising equity capital. Had we another 60 or 90 days they would have been likely to have their capital in place and would have been able to make a credible offer. Without their capital in place the insurance commission was not willing to consider that a viable option.

When it became highly unlikely we were going to find a credible buyer in the short window we were given, it was inevitable the insurance department would put WINhealth into receivership. We didn’t contest it. The process was not adversarial, but perhaps it was unnecessarily uncomfortable. We recognize the position the commissioner was in and his need to protect the citizens of Wyoming. There were frequent occasions with him between spring 2015 to the time we went into receivership that the department had weekly phone calls with the CFO and we were keeping them very well-informed. In the end the commissioner got a court order to take control of the plan. He came over to inform the employees that WINhealth had been put into receivership and, quite frankly, he fired me on the spot.

Glause: If there was one surprise, as I had gone to the national meetings and visited with colleagues, everyone had told me when these health insurance companies fail, they fail fast. You really don’t appreciate that until you live it, and how quickly their risk-based capital will drop.

Life Since WINhealth Entered Receivership
Wendy Curran, Blue Cross Blue Shield: 
We have dramatically upped our staffing, a number of them from WINhealth just to handle the claims processing, but more than that the premium payments and membership cards and customer service. Everything had a big increase and we had to step up to do that. We have people sitting downstairs in the hallways and in what used to be storage rooms because we know the service to take care of them is just as important to them having insurance in the first place. We have more than doubled what we had in our enrollment in the healthcare exchange program. It was a significant jump very quickly.

When we found out the insurance commissioner put WINhealth into receivership, it was all hands on deck. We worked very closely with Enroll Wyoming and had a couple meetings with the insurance commissioner’s office to talk about how broadly and effectively we needed to get out to people. We cataloged a list of small groups that we thought were covered by WINhealth and had extensive outreach to say, “we understand this has happened. We are here if you want to talk to us. If you don’t, that is fine.”

Glause: We authorized a full assessment of the Wyoming Life and Health Guaranty Association for 2016, but only called half of that. So far we have raised about $16 million. We are doing them in $5 million batches. The $15.5 million we have paid out in claims have gotten us through the end of the year. What you’ll see now is we will probably reduce that out to paying about $1 million a week going forward. The capacity of the guaranty association is $10.9 million per year. Companies in the Wyoming Life and Health Guaranty are assessed 2 percent of the average amount of premium they have written over the last three years. Even companies who have withdrawn from the Wyoming market are still being assessed based on their activity over the last three years. The insurance companies get a premium tax credit over the next 10 years. Ultimately, it is state dollars that is paying the insolvency.

Thankfully, the prior staff at the Insurance Department and commissioners and legislature had the foresight to add HMOs to our guaranty association. A lot of states do not extend coverage to the HMOs. We are fortunate ours did and maximum limits have been extended from $100K max to a $300,000 maximum limit per life. I was hoping we were going to get through this without anyone hitting the $300,000 limit and we have had a single individual who has reached the maximum limit. We do have reinsurance to go above the $300,000. We are watching our large loss claims very closely. Keep our fingers crossed we are going to come out pretty good.

Lessons Learned
Clearly in hindsight, we could have charged more. We could have set initial premiums higher. That would have changed the mix of enrollees. WINhealth had 6,000 members before the exchange – commercial groups. We grew from 6,000 to 15,000 members in a 60-day period of time and underestimated the stresses on the organization. Clearly the government had made commitments to the industry that didn’t come through and the rules kept changing. Given all that, I am proud of what we accomplished. Clearly I would have written a different ending had I been given the opportunity (to re-write history).

Curran: If you didn’t start with good reserves, you aren’t going to make up good reserves selling in the small group or individual markets on the health insurance marketplace. You can’t build a reserve margin into your premiums due to the ACA’s requirement that 80 percent of premiums are spent on healthcare and 20 percent on administration. There are restrictions on what you charge and spend on healthcare. It is a different system. It is very important to realistically set your premium rates not to be the cheapest on the market, but accurately reflect what you think the costs will be going forward.

Glause: The one thing that I get asked a lot is was it management, was it lack of skilled people in the right positions? I have to say, I am impressed with the skill set and the employees of WINhealth. They are very competent. Typically, the claims are adjudicated quicker than they have money to pay them.

Goldstone: There are some external things which could have positively impacted WINhealth. Had the state expanded Medicaid, it may have positively impacted the next enrollment. I don’t know if we’ll ever know that for sure. The fact healthcare is so expensive in Wyoming is another factor. Clearly at the end of the day, WINhealth knew when we decided to enter the exchange we were entering uncharted territory. I think the fact we did as well as we did for as long as we did was a credit to the employees who worked at WINhealth, and continue to do so. If we had it to do over again, I think we would do the same thing.

Could it Happen to Blue Cross?
Glause: No. Blue Cross of Wyoming is one of the financially healthy companies in the nation. Their reserves are sufficient, and it is not money that they have made off the ACA, but money they have made in other years and ultimately they will receive a tax credit of 1/10th of what they have paid over the next 10 years as part of the Guaranty Association paying in to cover WINhealth claims.

Curran: We have always maintained what we believe is a strong capital reserve to cover those risks. This is by nature a conservative company operating in a conservative state. We have never had glitz and glamour. We are just an old-school company. The financial backing is very strong and very stable.

Remaining Insurance Climate
We are in a unique situation in Wyoming. We have limited population and high medical costs, and so those two factors contribute to a hard-to-predict risk factor. Moving forward, if and when we have new companies come into Wyoming, we need to take a hard look at their capitalization above what those bare minimum requirements are.

We are having trouble attracting other carriers to the individual market. We just don’t have a lot to offer, especially in terms of population, because you have to spread the risk over a large population in order for the risk to work out. If you have one or two, three premature births over a small population, that has a lot more impact than if you can spread it out over a larger population. We have been contacted by some companies with potential interest. I’ve talked to U.S. Health and Human Service Secretary Sylvia Burwell personally and CEO of Kevin Counihan and it gets to be a real difficult line to walk. First and foremost, we are regulators and don’t have a lot in terms of things to entice them to say we need more insurance companies in Wyoming. We can’t really incentivize it. It is tough being a regulator trying to recruit business; it is somewhat a conflict of interest. I do think we will see some entities entering the market in targeted areas.

Curran:  We don’t think it is a fragile insurance market. We think it is more limited competitive market than it was six months ago. On the other hand we are seeing more activity from some of the larger insurance companies who haven’t been here before. The Uniteds, the Cigna’s are certainly coming and talking to groups here more. I don’t think it is fragile. I think that WIN’s financial condition was a limited occurrence caused by decisions over the years by the company that didn’t pan out. I don’t think it is fragile in that sense.

I think for small group and individual market and the shock are pretty much set. It is what it is. I don’t think any of that has changed. I think we will support a lot more small groups which will require more staff resources. We still want to offer healthcare at an affordable price. We don’t want to be the biggest company in the West.”

What is to keep those left in the market from raising rates or lowering reimbursements?
The ACA has safeguards built in with the 80-20 medical loss ratio in the individual marketing and 85-15 loss ratio in the group market. In other words they can only spend 80 percent of what they receive in premium must, by law, be spent on health care.

They still have to meet those medical loss ratios, so it doesn’t do them any good to jack up their rates or force reimbursements down, or they will be reimbursing that to consumers

Curran:  Federal oversight. The ACA actually justify rate increase. You don’t get to pick a number and say, this looks good for us. We have to submit our rates in May. From May-Sept, the federal government goes through them with a fine-toothed comb. It is probably the deepest level of rate oversight we have ever had. If you raise your rates significantly they publish your name on the list of the most expensive rates and that isn’t good for anyone. At the end of the day, if we raise them too high, we are going to be out of the administrative category and we are going to give it back through rebates to the members.

We have pressure and that puts pressure on the providers. We also know if anything is fragile it is the healthcare system in Wyoming. We don’t have a lot of extra doctors, we don’t have a lot of extra money. We have to have the services of everyone in the state because we don’t have competition. We have to maintain decent relationships with everybody. We can’t just slash-and-burn reimbursement rates.”

Post Script
Since WINhealth was placed into the liquidation process under the watch of the State Insurance Department, the company continues to operate on a skeleton crew, which is processing claims. Glause says the employees at WINhealth will continue to process claims as quickly as they come in. He requests physicians submit any claims as quickly as possible.