QualChoice for sale, but no buyer yet for one of Arkansas’ largest health insurers

Catholic Health Initiatives has decided to explore options to sell QualChoice, but that does not necessarily mean QualChoice will be sold in its entirety or at all, QualChoice of Arkansas President and CEO Mike Stock said in a Wednesday (July 6) interview.

“They can sell all the Medicare plans,” he said. “They can sell the commercial plans. They can pick and choose what they want to sell based on each one’s a separate corporation. They can decide to sell all of it. Ultimately, they could decide to stay in the business.”

He later added, “Just like anything, CHI might talk to suitors and explore options and decide, ‘No, we’re just going to keep doing what we’re doing.’”

CHI, a large health provider that also owns the CHI St. Vincent Infirmary in Little Rock, made public it was exploring selling QualChoice Health in a quarterly report to bondholders dated June 29. CHI reported QualChoice Health, the holding company for operations in seven states including Arkansas, had lost $96.9 million the previous nine months. During that same time period in 2015, it lost $18.9 million.

According to Stock, the company’s three Arkansas-based corporations that sell QCA Health Plan, QualChoice Life and Health, and the company’s Medicare Advantage plan were not the reason for the losses.

Stock said QualChoice Health covers a couple of hundred thousand people nationally, and that 155,000 of them are in Arkansas. Stock said while QualChoice in Arkansas – founded in 1994 and bought by CHI in 2014 – and another subsidiary, Soundpath Health in Washington, are established and growing, the company is operating startups in five other states that are facing high initial costs. The report sent to bondholders said CHI had approved staff reductions to QualChoice Health in March.

Ryan James, spokesperson for the Arkansas Insurance Department, said once a potential buyer completes the paperwork, the department will check on its financial viability, a process that will take at least a year.

“What happens now is everything keeps running as if everything’s normal,” he said. “The only change of status is that QCA’s parent company, CHI, Catholic Health Initiatives, has hung out their for-sale sign, and they announced that to their stockholders.”

Stock said the Arkansas-based holdings rapidly have been growing. When acquired by CHI in 2014, QualChoice in Arkansas serviced 67,000 lives, and now it services 155,000. Much of the growth has occurred through its participation in the health insurance exchange created by the Affordable Care Act, otherwise known as Obamacare – particularly the private option, the state program that uses federal Medicaid dollars to purchase private health insurance for lower income individuals.

As of June 15, QualChoice Life and Health had 27,178 enrollees in the private option and 980 who purchased their own insurance through the exchange. QCA Life and Health had 25,343 in the private option and 105 who purchased their own insurance through the exchange.

In May, QualChoice Life and Health requested that the Arkansas Insurance Department allow it to increase rates by 23.69%, while QCA Health Plan asked for a 23.78% increase. Stock listed a number of factors in the rate increase request. Beneficiaries are using more health care services and have more health problems. Benefit plans have undergone minor changes, and a reinsurance program by the federal government that covered some of the costs of the exchanges during the first couple of years is going away. New drugs have high costs.

Stock said changes under the Affordable Care Act have created unstable risk pools because consumers can wait until they need health care before becoming insured. In contrast, other types of insurance, such as auto insurance, are bought every year but used only rarely.

“The system needs to stabilize,” he said. “There’s been a lot of change and disruption in the industry in the last couple of years. That creates opportunities, but it also creates challenges.”

Stock said companies are looking to increase scale, and that includes QualChoice Health, which had $377 million in insurance premium revenues for the nine months ended March 31, according to the quarterly report.

“Our goal is to continue to grow,” he said.

Ray Hanley, president and CEO of Arkansas Foundation for Medical Care, a nonprofit health consultant, said the struggles of QualChoice and other payers are a reflection of “the complete abject failure of the Affordable Care Act to be able to contain costs.” He said he doesn’t see continued near term momentum toward the vertically integrated model where medical providers also own insurance companies.

“Owning an insurance company if you’re a hospital probably doesn’t look as attractive as it did five or six years ago,” he said.