Wind-downs

With the recent news that Friday Health Plan is winding down its operations, I think it would be useful to look over the range of options that the phrase “wind down” could cover. I’ll try to go from the least disruptive to the most disruptive.

1) Limp to December 31st.

In this scenario, an insurer has sufficient capital to satisfy regulators’ natural worries for the rest of the year. The insurance contracts would be paid in full, doctors and hospitals would be paid and beneficiaries don’t have to do anything this year. Their cost-sharing accumulates per expectations and their payments made in January still count for December. This would be the best case scenario even as there would be substantial disruption in 2024 as people get automatically re-enrolled into different insurers and this creates a friction point where we can anticipate substantial enrollment loss.

2) Mid-year termination with smooth transitions

Friday or other insurers in trouble would close down mid-year with several months of warning. Enrollees are protected by being automatically cross-walked into new insurers with the option of manual adjustments during a special enrollment period. Individuals who had paid cost-sharing in the first contract would have that money carry over to the new policy. Insurers would be iffy about this scenario as there are substantial risk-adjustment concerns.

3) Mid-year terminations with rough transitions

The insurer in trouble would close with some warning. Enrollees would have to manually re-enroll. Lots of people will drop coverage for a variety of reasons. Deductibles and other cost-sharing would reset at the new insurer. New insurers are still very worried about risk adjustment shocks.

4) C-ya later

The original insurer just goes POOF into the night and disappears. Everyone and everything is a mess. Massive risk adjustment problems.

Risk adjustment is a big thing in all scenarios except surviving to the end of the year. Even then future payables on the risk adjustment might be in doubt.