Texas Friday Health Plans Declared Insolvent, Assets Seized

The Texas Insurance Department placed Friday Health Plans into receivership after the health insurance company filed for insolvency.

Under a liquidation order issued Thursday, the Lone Star State Insurance Commissioner seized Friday Health Plans’ assets and is tasked with liquidating local property, technology, bank accounts and other valuables to pay off outstanding claims.

Creditors are barred from reimbursing money Friday Health owes them, and the insurance company 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 deficit, according to financial documents. The Texas liquidation order does not affect the company’s operations in six other states, where it sells items on health insurance exchanges, a Friday Health spokesperson said in an email.

Like other health insurance startups, Friday Health launched in 2015 to jump into the health insurance markets, betting that the market is shifting away from employer-sponsored health insurance plans towards individual policies. Friday Health also offers health care reimbursement mechanisms that allow small employers to provide tax-free subsidies that workers can use to purchase insurance from exchanges.

The privately held company has raised $306.1 million in venture capital and debt to support its operations, according to Crunchbase. In its latest funding announcement last May, Friday Health said it employs 600 people and serves more than 330,000 members, nearly three times the size of Insurtechs Alignment Healthcare and Clover Health. At the time, Friday Health estimated that the company would have $1.95 billion in revenue in 2022.

Other states are now watching Texas regulators wind down Friday Health operations.

The Georgia Insurance and Fire Authority is aware of Texas’ liquidation procedures and is working with other states to closely monitor the situation, the spokesman wrote in an email. Friday Health ended the year with a $5.9 million deficit in the Peach State, according to financial filings.

The Nevada Insurance Department is also monitoring activity in Texas, a company spokesman said in an email.

Regulators in Colorado, New Mexico, North Carolina and Oklahoma did not respond to interview requests.

The failure of Friday Health in Texas will weigh on other health insurers. Competing insurance companies will have to cover the cost of unpaid claims through the state’s guarantee association, according to Friday Health.

The Texas Insurance Department did not respond to a request for information on the amount of Friday Health’s outstanding claims.

Friday Health’s financial position could also impact the exchanges’ federal risk-adjustment program, which requires insurers that cover relatively healthy policyholders to transfer money to carriers with more expensive members. The Centers for Medicare and Medicaid Services are still calculating how much insurers will pay or receive for the 2022 target year; risk-adjusted payments are due in August.

Friday Health estimates that it owes $535.9 million to other Texas insurers, risk-adjusted, in 2022. If it fails to pay the full amount, other local insurers will receive less than expected, said Ari Gottlieb, independent healthcare consultant at A2 Strategy Group. .

“We don’t know how badly other health insurers who should be paid the risk adjustment will be hit, and what are the implications of that,” Gottlieb said. “Some of these insurers are not large companies.”

Gottlieb said the precarious financial situation of health insurance startups exacerbates the risk to other carriers. Bright Health Group, for example, estimates it owed $723 million to other Texas insurers in risk compensation last year, according to financial documents. But the company is pursuing a reverse stock split to remain solvent and has reported a cash crunch in Texas. Oscar Health, which announced a new CEO Tuesday, expects to owe $1.5 billion in risk-adjusted payments in several states, including Texas, according to financial documents.

Questions about whether these insurers can meet their obligations highlight the need for more government oversight, Gottlieb said. Regulators need to confirm that insurers have enough cash to survive for a year before allowing them to sell policies to more consumers, he said. Government officials should also review premiums to make sure carriers don’t drive down prices, he said.

“We are not at the end of this story yet, but we are nearing the end,” Gottlieb said. “This is the culmination of a model of irrational pricing and hypergrowth of individual markets that does not work. Friday is just the first insurance company to go down.”