Update from the Financial Solvency Standards Board

The Financial Solvency Standards Board (FSSB) Meeting of August 20, 2014 covered several topics of interest to advocates, including initial findings on the Alameda Alliance and its corrective action plan (CAP). A common theme running through several agenda topics is the need to catch solvency problems before they get to the CAP stage. DMHC was questioned closely as to whether their gradations of “closely watched plans” and “those under a Corrective Action Plan” (CAP) were not meaningful since apparently those plans that were being “watched closely” did not generally prevent them from going into a financial tailspin.

Initial findings from the assigned conservator, Berkeley Research Group, suggest the Alameda Alliance, which serves Medi-Cal patients, is on the mend, though the devil may be in the details. The number of outstanding claims decreased to 175,000 from 300,000, and the time to process claims shrank from 100 to 50 days. So far so good, but what’s not clear is whether Alameda Alliance can—or should—handle the massive surge in enrollees, up to 230,000 members and counting. Financing and solvency are the tip of vast iceberg where utilization and care management come into play. Thankfully, most FSSB members prefer to look at the solvency issues in the deeper context of overall plan performance. FSSB members asked whether it is prudent to permit new enrollees to Alameda Alliance when its financial condition remains precarious.  DMHC’s position is that it will strengthen their financial underpinnings to have a bigger membership base, but some question whether it is wise to let more consumers join—particularly since its solvency is not yet assured.

Several members of the FSSB asked questions beyond the specific case of the Alameda Alliance.  What has DMHC learned now that they have undertaken the extraordinary step of installing a conservator at the plan?  This step, in essence, is very expensive and puts them in the unenviable position of actually running the health plan.  This should enable them to refine their oversight protocols to tailor them to predict more accurately these kind of failures.  Should they be asking for additional or different data?  Should they have intervened sooner?

This discussion also led to whether the standard of Tangible Net Equity (TNE) is the right one.  If a plan has one dollar in assets more than it has in debts, is that enough?  Many CFOs and actuaries on the board requested a re-examination of what that standard should be with an eye toward emulating market scrutiny tools which examine Risk Based Capital which are becoming much more commonplace than TNE.

Risk-Bearing Organization (RBO) Solvency in the Face of Increased Medi-CAL Enrollment

With more Medi-Cal enrollees than ever assigned to risk-bearing organizations (RBOs) as a result of the broader shift toward mandatory managed care and the state about to enter into a Medi-Cal waiver renewal process, it will be important to monitor RBOs closely, again before they trigger a CAP.  Board members are asking to consider the RBOs performance and solvency in context of overall plan solvency, something the DMHC examiner says is happening already. It’s not enough to look at contractual requirements, says Health Access’ Beth Abbott, or financial solvency indicators in isolation, especially given the reality that the shakiest plans are those that serve the most vulnerable Medi-Cal consumers.

Enrollment in Individual Market Plans Monitored by DMHC

Overall the ACA brought 1 million more covered lives into the individual marketplace, and the number of grandfathered and non-ACA compliant plans is steadily decreasing (see details here). That’s good news for California consumers, but now the focus shifts to practical issues that could easily make or break the long-term success of health reform: are consumers getting the care they need, at the right time and place? And are the agencies with oversight of plan performance, like the DMHC and DHCS, equipped to monitor the plans as California insurance marketplace and Medi-Cal shifts more of the risk to the plans and RBOs? The challenge for regulators (and advocates) is to minimize disruption for consumers as the landscape for insurance solvency and performance continues to shift.  This is clearly a work in progress.

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