► Minuteman Health NewsroomMarch 7, 2016

Minuteman Health files 2015 Annual Unaudited Financial Report

Sets aside $3,000 in cash per 2015 member due to the federal Risk Adjustment program

BOSTON—Minuteman Health (www.minutemanhealth.org) filed its 2015 unaudited annual financial statement, reflecting medical claims below target, administrative costs on budget, IBNR reserves of $7 million (or $7M), and $93M in cash. Even after covering all known and projected liabilities for 2015 and 2016, the company is well capitalized with a Risk Based Capital (RBC) of 621%. Due to the impact of the federally required Risk Adjustment program, the filed results illustrate an enormous difference between cash and accounting results for 2015.

On a cash basis, the Risk Adjustment program required Minuteman to record a loss of $1.0M in 2015. This was driven by the third quarter 2015 Risk Adjustment payout of $3.1M, or 71% of 2014 premiums for the 2014 plan year, instead of the $0.9M previously set aside for that purpose. In all other respects, Minuteman had a positive operating cashflow of $2M.

On an accounting basis, the significant impact of the 2014 Risk Adjustment payout as well as publicly documented volatility in the federally required Risk Adjustment program has led Minuteman to become even more cautious. As a result, the Company set aside massive reserves at the close of 2015 to cover potential Risk Adjustment–driven payouts in the future. These include a charge of $17.6M, or 41% of 2015 premium, for potential 2016 Q3 Risk Adjustment payout and an additional $22.6M, or 53% of 2015 premium, in the form of a Premium Deficiency Reserve related to additional Risk Adjustment impacts in 2016 that could result in a payout in Q3 of 2017. Note that the $22.6M for 2017 is in addition to the funds that Minuteman had already built in for potential Risk Adjustment payments in 2017.

Together, these reserve charges mean that Minuteman is booking almost all of the 2015 premium of $42.8M to add to funds available to pay out potential risk adjustment liabilities in 2016 and 2017. Reserving now for potential future years’ payouts was the main driver behind non-cash accounting losses of $42.7M for the 2015 accounting plan year. Actual payout amounts will be reconciled with those and subsequent estimates once final results are determined by the current federally driven formula on June 30 of 2016 and June 30, 2017.

Other financial items
Minuteman has a healthy medical-expense-to-net-premium ratio even after consideration of the so-called ‘3Rs’ federal programs (Reinsurance, Risk Adjustment, and Risk Corridor) of 86.5% versus the Massachusetts target of 88% and the federal targets of 80% and 85%, respectively, for the individual and small group business in New Hampshire. Additionally, Minuteman has a strong and stable balance sheet with $93 million in cash and investments on hand as of December 31, 2015, that more than covers all known and projected liabilities for 2015 and 2016. RBC was a robust 621% even after including all federal Risk Adjustment–related reserve charges.

The final ‘R’, or Risk Corridor program, has also generated significant concern in the industry. Minuteman records this on the income statement as instructed but continues to fully discount the Risk Corridor receivable on the balance sheet as a ‘non-admitted asset.’ In other words, the Company does not rely on receiving the money that the federal government is obligated to pay under the Risk Corridor program for 2015.

Future of Risk Adjustment
Minuteman has long expressed concerns about the design and implementation of the federally driven Risk Adjustment program. The Company believes the data is clear that Risk Adjustment penalizes companies that experience significant member growth—especially when those companies sell products with lower premiums. The overall results appear to be well outside the design parameters of the federal program.
For Minuteman:

  • Actual payouts for the 2014 plan year amounted to $2,150 per member
  • 2015 reserves for potential payouts in 2016 and 2017 amounted to approximately $3,000 per 2015 member

The two main issues are that new members appear to be scored as healthier than they really are, and that lower cost plans are then forced to pay out based on the average market premium. The second point bears further focus—fully 40% of the reserves being established are simply to pay more because Minuteman members are buying less expensive products. This amounts to $16M, or 37.4% of 2015 premium. Said another way, Minuteman’s 2015 members are estimated to have paid over $100 each per month that will go to carriers that cost more money…simply because they cost more money. This has nothing to do with covering the risk of a population and instead simply highlights some of the design and implementation flaws of the federal rules.

“We continue to work with state and federal rule-makers to highlight the challenges of the risk adjustment program and to focus on practical solutions that will deliver lower, stable premiums to consumers,” Policelli said. “The bad news is that this is a complicated topic. The good news is that practical short-term solutions are actually quite simple to enact and require no changes in the law. Adjusting the rules to better reflect the policy intent would stabilize the market and benefits consumers.”

“It is important to note that there is no industry standard for calculating risk adjustment transfer. In practical terms, this means two things. First, it is virtually certain that Minuteman’s risk adjustment transfer actuals will be different from the estimates; external studies have shown that the industry overall has been unable to predict the outcome of this volatile program so far. As a result of a lack of standard methodology and the material impact of the reserving assumptions made by carriers, we do not believe health insurance financial filings are likely to be easily compared at this time. This likely will be particularly true for insurers that grew membership in the small and individual group markets.”

Minuteman has issued a letter to members to lay out this situation for them and to keep them fully informed. Minuteman Health is a founding member of Consumers for Health Options, Insurance Coverage in Exchanges in States (CHOICES), a national coalition of health insurers focused on improving the ACA’s 3R programs.


About Minuteman

Minuteman Health, Inc. is a member-governed, non-profit health maintenance organization (HMO) committed to removing inefficiencies from today’s health insurance system to provide high-quality care, cut administrative costs and reduce premiums for individuals and businesses in Massachusetts and New Hampshire.

Minuteman Health’s In-Plan Provider network includes over 11,300 hospitals, physicians, and specialists who provide high quality care at lower costs in Massachusetts and New Hampshire. Updates on Minuteman Health’s evolving provider network can be found at www.minutemanhealth.org.

inuteman is marketed in Massachusetts through its website, brokers, Health Services Administrators (www.HSAinsurance.com) and the Massachusetts Health Connector. It is marketing in New Hampshire through its website, brokers, and the Federal Healthcare Exchange.


CHOICES members are non-profit as well as investor-owned, health system-sponsored and independent, and newer entrants as well as companies with decades of experience as members of their local communities. The group came together to examine what gaps may exist between the policy intent and the practical reality of the ‘3Rs’ programs today. Such gaps are to be expected in any launch of a new methodology, and CHOICES looks forward to continuing to work productively with CMS to replace old assumptions with the current data.

CHOICES founding members include Minuteman Health, Health New England (Massachusetts), HealthyCT (Connecticut), Land of Lincoln (Illiniois), Melody Health Care (Colorado), New Mexico Health Connections, Evergreen Health (Maryland), Bright Health Plans (Minnesota), Cox Health Plans (Missouri), Medical Associates Health Plans (Iowa), and the National Alliance of State Health CO-OPS (NASHCO).

Media Contact:
Jim Borghesani


Lisa McTighe
Director of Member Outreach