OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has revised the outlooks to positive from stable and affirmed the Financial Strength Rating of B++ (Good) and the Long-Term Issuer Credit Rating of “bbb+” of Health Alliance Medical Plans, Inc. (HAMP) (Champaign, IL) and its wholly-owned subsidiary, Health Alliance-Midwest, Inc. (Midwest) (Champaign, IL) (collectively referred to as Health Alliance).
The ratings reflect Health Alliance’s balance sheet strength, which AM Best categorizes as strong, as well as its marginal operating performance, limited business profile and appropriate enterprise risk management.
The revised outlooks to positive reflect improved operating performance and a very strong level of risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR). After reporting operating losses, Health Alliance’s profitability trended favorably over the past several years and this has continued through early 2019, driven by several implemented performance initiatives that have resulted in a shift of membership toward HMO products and improved medical management. In addition, the ratings also reflect the group’s strategic role as the managed care subsidiary of The Carle Foundation, a fully integrated health care delivery system, as well as an established network and overall creditworthiness, which enhances Health Alliance’s assessment. Furthermore, the parent organization historically has demonstrated explicit financial support through its line of credit to supplement its operating cash flow needs relating to Health Alliance state receivables and the corresponding challenges with Illinois’ timing of payments.
Health Alliance’s balance sheet strength assessment reflects an elevated level of equity holdings, which exposes capital to potential future pressure when considered with the historical level of dividend payments. AM Best will continue to monitor the appropriateness of the group's level of risk-adjusted capitalization, as well as the level of support it receives from The Carle Foundation, if required.
The ratings also consider concentration risk associated with the Illinois state employee account. Health Alliance's total membership enrollment is very heavily concentrated toward this account, as is a large portion of its overall premium; these factors pose a substantial concentration risk. While AM Best acknowledges the risk, the group has benefited from the advantages of economic scale and the profits derived from this account. Additionally, recent improvement in premium payment delays has caused a sizeable decline in accounts receivable. Health Alliance remains challenged by a highly competitive healthcare marketplace that includes larger national and regional health carriers.
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