An Aug. 24 decision by New York’s Northwell Health to exit the health insurance business in 2018 is a credit positive for the large healthcare network because it will halt losses that have occurred four years after entering the sector, according to Moody’s Investors Service.
The exact financial benefit for Northwell cannot be determined yet since it must provide a 180-day notice before a halt to accepting new members for 12-month plans, but not many are expected to sign up for a company leaving the insurance market, according to Monday's Moody’s report. Moody’s analyst Daniel Steingart noted in a report released Monday that Northwell’s insurance losses totaled $26.5 million in first-quarter of 2017 on top of $168 million in 2016 and $41 million in 2015. Full-year 2017 losses are expected to number above $100 million with the final amount determined by the outcome of negotiations with various parties such as state regulators, according to Steingart.
“Although the insurance plans were a core component of the system’s long-term population health strategies, we believe there are myriad other ways the organization can achieve population health goals, such as reducing unnecessary hospitalizations and improving the health of communities it serves, without owning a health insurance plan,” said Steingart in his report.
Northwell’s health insurance losses were mainly tied to large payments made under the Affordable Care Act’s risk-adjustment pool methodology. Steingart said payments under this program totaled $132 million in 2016 and may reach $118 million in 2017.
Startup costs with the new plans also led to losses, but have been manageable to Northwell overall, according to Steingart. In 2016 the system posted $9.9 billion in revenue and generated positive cash flow of roughly $620 million compared to $556 million in revenue at the insurance companies.
“Northwell made nearly $340 million in capital contributions to its insurance companies through the first quarter of 2017, which is manageable relative to the system’s overall unrestricted cash position of nearly $3 billion,” said Steingart in the report. “Nevertheless, the insurance losses have been a drag on operations, lowering the system’s cash flow margin by approximately 1.5 percentage points in 2016, consuming cash and senior management’s time and effort.”
Moody’s rates Northwell Health bonds at A3 with a stable outlook. The Long Island- based healthcare network is the largest healthcare provider in New York State with 22 hospitals in the New York City metropolitan region. It re-branded in 2015 as Northwell from its previous name, North Shore LIJ Jewish Health System.