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HMO points to acquisitions, accounting practices for its impaired net worth

A managed care plan that fell below statutory surplus requirements is citing, among other things, acquisitions and state reporting requirements for the dip in net worth.

The Office of Insurance Regulation entered into a consent order (see below) with Molina Healthcare of Florida on May 15 . The consent orders allow the Florida plan to continue to accept new enrollment and requires the parent company to assure its financial stability.

Leigh Woodward of Molina Healthcare of Florida attributed the company’s impaired net worth for the year ending 2014 to a trio of factors: two acquisitions worth more than $50 million, Healthy Palm Beaches and First Coast Advantage; a lackluster December performance; and “technical accounting treatment of deferred income taxes and payments received in advance from the Agency of Health Care Administration.”

The plan had 163,668 members at the end of 2014. Molina reported to the OIR that it participated in the federal health insurance exchange under ObamaCare and obtained 180,000 new and renewal members through the first quarter of 2015.

Woodward said in a statement that Molina Healthcare, the FORTUNE 500 parent company of the Florida plan, “is confident in its financial standing and compliant with all fiscal requirements.”

While the order was signed in May, the health plan had been on the Office of Insurance Regulation’s radar before then. Details in the consent order show that the Office of Insurance Regulation notified Molina in a letter from July 2014 that the information Molina had provided the state in a rate filing indicated that the rates were inadequate because of inappropriate risk assumptions about former Medicaid and uninsured members.

The consent order also shows that the company had infused $59.6 million in capital investment into the plan in 2014, the lion’s share of which had been appropriated in December. The company still was $2 million shy from meeting its minimum surplus requirements.

Florida Law requires HMOs to maintain solvency requirement in the greater amount of:

  • $1,500,000;
  • 10 percent of total liabilities; or
  • 2 percent of total annualized premium

Insurance Commissioner Kevin McCarty issued a memorandum to HMOs in May advising that the solvency requirements are in effect at all times, not just the end of each quarterly reporting period.

McCarty’s memo also puts in bold and underlines the message that it’s is a felony for any officer or director of an HMO to accept or renew insurance or provider contracts if the officer knew the HMO was impaired or insolvent.

Molina isn’t the only plan operating under a consent order. The OIR signed a consent agreement with WellCare of Florida on June 3 after the plan failed to meet the state’s minimum surplus requirements for the first quarter of 2015.

According to the agreement, the plan was supposed to maintain a minimum surplus of $68.8 million. WellCare of Florida fell below the requirement with a surplus of just $29.7 million. It’s spokesperson attributed the plans financial troubles in part to the Affordable Care Act and a requirement that the “provider fee” HMOs are levied be expensed in its entirety in the first quarter.

Molina Healthcare of FL_Consent Order_May 15, 2015)

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