Report on the Examination. NEIGHBORHOOD HEALTH PLAN OF RHODE ISLAND Providence, Rhode Island. as of. December 31, 2013

Transcription

1 Report on the Examination of NEIGHBORHOOD HEALTH PLAN OF RHODE ISLAND Providence, Rhode Island as of December 31, 2013 State of Rhode Island and Providence Plantations Department of Business Regulation Insurance Division

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3 TABLE OF CONTENTS Salutation Scope of Examination Company History Management and Control Purposes and Powers... 5 Members.. 6 Board of Directors... 7 Officers Committees Conflict of Interest Corporate Records Fidelity Bond and Other Insurance.. 14 Officer and Employee Welfare and Pension Plans.. 14 Territory and Plan of Operation Growth of Company Medical Expense Experience Reinsurance Accounts and Records.. 19 Information Systems Independent Audit Statutory Reserves Financial Statements Comparative Statement of Assets, Liabilities, Capital and Surplus Statement of Revenue and Expenses Capital and Surplus Account Reconciliation of Surplus Analysis of Examination Adjustments Assets Bonds.. 27 Cash and Short-term Investment 27 Liabilities.. 28 Claims Unpaid Accrued Medical Incentive Pool and Bonus Amounts Unpaid Claims Adjustment Expenses Aggregate Health Policy Reserves.. 28 Page ii

4 TABLE OF CONTENTS (Con t.) Page Capital and Surplus Summary of Recommendations Subsequent Events.. 30 Conclusion iii

5 September 9, 2014 Honorable Kathleen C. Hittner, MD Health Insurance Commissioner State Of Rhode Island and Providence Plantations Office of the Health Insurance Commissioner 1511 Pontiac Ave Bldg 69-1 Cranston, RI Dear Commissioner Hittner: In accordance with your instructions and pursuant to Chapters 13.1 and 41 of Title 27 of the General Laws of the State of Rhode Island, an examination has been made as of December 31, 2013, of the financial condition and affairs of NEIGHBORHOOD HEALTH PLAN OF RHODE ISLAND at its home office located at 299 Promenade Street, Providence, Rhode Island. The report of such examination is herewith submitted. Neighborhood Health Plan of Rhode Island, also referred to within this report as NHPRI, or the Corporation, was previously examined as of December 31, Both the current and prior examinations have been conducted by the Insurance Division of the State of Rhode Island ( Insurance Division ). 1

6 SCOPE OF EXAMINATION The current examination was performed in compliance with the above-mentioned section of the General Laws of the State of Rhode Island, as amended, and covered the intervening four-year period ended December 31, The examination was conducted in accordance with the National Association of Insurance Commissioners ( NAIC ) Financial Condition Examiners Handbook ( Handbook ), Risk-Focused Examination Process. The Handbook requires that we plan and perform the examination to evaluate the financial condition and identify prospective risks of the Corporation by obtaining information about corporate governance, identifying and assessing inherent risks, and evaluating the controls and procedures used to mitigate those risks. The examination included assessing the principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation, and management s compliance with Statutory Accounting Principles and the NAIC Annual Statement Instructions. The examination process included a business risk assessment to focus examination procedures on those areas considered to have greater risk in order to identify significant operating issues and/or deviations from statutory accounting practices that may affect solvency. All accounts and activities of the Corporation were considered in accordance with the Risk-Focused Examination Process. NHPRI instructed their independent accounting firm to make available for review all work papers concerning procedures followed, tests performed, information obtained, and conclusions reached pertinent to the firm s audit of NHPRI s financial statements for the year ended December 31, The work papers of the independent accounting firm were reviewed in order to ascertain the extent to which procedures were employed to determine 2

7 compliance with statutory requirements and guidelines. The work papers and analyses prepared by the independent accounting firm were utilized to the extent possible. Where applicable, the independent accounting firm s work papers have been incorporated into the examination process. COMPANY HISTORY The Corporation, under the name of Neighborhood Health Plan of Rhode Island, Inc., was incorporated as a Delaware business corporation and commenced business on December 9, Subsequently, the Department of Health of the State of Rhode Island licensed the Corporation to transact business. The Corporation, in accordance with the provisions of Rhode Island General Laws 27-41, applied for and received licensing with the Insurance Division of the Rhode Island Department of Business Regulation on December 1, 1994, and began operations on December 10, On December 31, 1996, a new Rhode Island corporation was formed under the name of NHPRI, Inc. On the same day, a Certificate of Merger was filed with the Secretary of State of Delaware to combine the Delaware based Neighborhood Health Plan of Rhode Island, Inc. with the Rhode Island based NHPRI, Inc. Subsequent to the merger, the Rhode Island Corporation remained as the surviving entity and pursuant to the Agreement and Plan of Merger between the merged corporation and the surviving corporation; the name of the surviving corporation was changed to Neighborhood Health Plan of Rhode Island, Inc. The previous Delaware Company applied for a Certificate of Withdrawal from the Secretary of the State of Delaware, which was approved. On September 22, 2000, the Corporation filed Articles of Incorporation with the Office of the Secretary of State in the State of Rhode Island to incorporate the not-for-profit entity. The 3

8 Corporation also filed Articles of Merger or Consolidation with the Office of the Secretary of State in the State of Rhode Island on December 21, 2000 merging Neighborhood Health Plan of Rhode Island, Inc. into NHPRI, Inc. with the surviving company s name being Neighborhood Health Plan of Rhode Island, Inc. Effective January 1, 2001, Neighborhood Health Plan of Rhode Island, Inc. organized a nonstock, not-for-profit organization, and contributed all of its assets and liabilities to the new not-for-profit organization. Concurrently, the preferred and common shareholders of Neighborhood Health Plan of Rhode Island, Inc. exchanged their shares of stock for member interests in the new not-for-profit organization. On May 9, 2001, the Corporation also filed Articles of Amendment to its Articles of Incorporation with the Office of the Secretary of State in the State of Rhode Island to amend Article IV, Section B be in its entirety as follows: Except as otherwise provided by law, the Corporation may at any time dissolve by the affirmative vote of two-thirds of the total number of members of the Corporation. Upon dissolution, the board of directors shall, after paying or making provision for the payment of all of the liabilities of the Corporation, distribute all of the assets of the Corporation to those of its members which are then engaged in the direct provision of health care to patients, and are organizations described in Section 501(c)(3) of the Code, pursuant to a resolution of the board of directors of the Corporation or failing such resolution, the order of a court of competent jurisdiction in the State of Rhode Island, specifying the methodology for such distribution. 4

9 MANAGEMENT AND CONTROL Purposes and Powers The Corporation s Bylaws state that the Corporation shall have the power, either directly or indirectly, either alone or in conjunction or cooperation with others, to do any and all lawful acts and things and to engage in any and all lawful activities in accordance with the provisions of these Bylaws which may be necessary, useful, suitable, desirable or proper for the furtherance, accomplishment, fostering or attainment of any or all of the purposes for which the Corporation is organized, and to aid or assist other organizations whose activities are such as to further accomplish, foster, or attain any of the Corporation s purposes. Notwithstanding anything herein to the contrary, the Corporation shall not engage, otherwise than as an insubstantial part of its activities, in activities which in themselves are not in furtherance of one or more purposes exempt from taxation under the Internal Revenue Code ( Code ). The Bylaws also stipulate that the Corporation shall be organized and operated as a nonprofit corporation under Rhode Island law and under Section 501(a) of the Code, as amended, or any corresponding provision of any future United States Internal Revenue Law. No part of the net earnings of the Corporation shall inure to the benefit of its members (except that reasonable compensation may be paid to the members for services rendered to and for the Corporation). In the event of the liquidation, dissolution, termination or winding up of the Corporation, whether voluntary, involuntary or by operation of law, the property or assets of the Corporation remaining after providing for the payment of its debts and obligations shall be distributed to those of its members which are then engaged in the direct provision of health care to patients and are organizations described in Section 501(c)(3) of 5

10 the Code pursuant to a resolution of the board of directors of the Corporation, or, failing such resolution, the order of a court of competent jurisdiction in the State of Rhode Island, specifying the methodology for such distribution. Members Article II, Section 1 of the Bylaws specify the initial members of the Corporation and notwithstanding this provision, only entities which meet the following criteria may become or remain members of the Corporation: (a) A member must be exempt from taxation under the Internal Revenue Code as an organization described in Section 501(c)(3) of the Code; (b) Any member other than Rhode Island Foundation ( RIF ) must be a member in good standing of the Rhode Island Health Center Association, a Rhode Island non-profit corporation exempt from taxation under the Code as an organization described in Section 501(c)(3) of the Code; and (c) Any member other than RIF must have in effect with the Corporation a Participating Provider Agreement pursuant to which the member agrees to provide health care services for the Corporation s enrollees in exchange for payment by the Corporation. Members shall have the responsibilities ascribed to members under the Rhode Island Non- Profit Corporation Act, including without limitation the right to amend the Corporation s Bylaws, approve amendments to the Corporation s Articles of Incorporation, and approve the merger, consolidation, dissolution and/or sale of all or substantially all of the Corporation s assets. Membership status in the Corporation is not transferable to any other person or entity. If two or more members affiliate, only one of the entities may remain a member. At any time, the members may admit as an additional member, any entity meeting all of the criteria for membership set forth above. Each member shall be entitled to one vote. All decisions must 6

11 be made by a majority of the members present at a meeting at which a quorum is present and voting. Any action required or permitted to be taken at any meeting of the members may be taken without a meeting if all of the members consent to the action in writing and their written consents are filed with the records of the Corporation. Board of Directors The Bylaws provide that all of the affairs of the Corporation shall be managed by a Board of no more than seventeen (17) directors. The board shall be comprised of one person designated by each member provided that member is the designated primary care provider for individuals who are entitled to receive covered services from the Corporation in its capacity as a health maintenance organization and represent at least six thousand (6,000) member months over the prior calendar year. Other directors include six (6) persons nominated by the Corporation s nominating committee; the president of Rhode Island Foundation, or his or her designee from Rhode Island Foundation senior management or board or past board of directors; the executive director of the Rhode Island Health Center Association (ex officio with vote); and the president of the Corporation, (ex officio with vote). Regular meetings of the board shall be held in Providence, Rhode Island, or at such other place, either within or without the State of Rhode Island, as the directors or the chair may determine. The secretary or other officer of the Corporation shall give notice of meetings to 7

12 each director in writing, at least three (3) days before the meeting. Notices of such meetings may be waived in writing by the director entitled to notice, whether or not she or he is present. The chair shall preside over and conduct board meetings. The membership of the board, together with their principal business or professional affiliation was as follows at December 31, 2013: Peter Bancroft Richard M. Besdine Doris De Los Santos Brenda Dowlatshahi Jane Hayward William Hochstrasser-Walsh James A. Hooley Chuck Jones Raymond J. Lavoie, Jr. Darrell A. Lee Michael Lichtenstein Director of Health Center Services WellOne Primary Medical and Dental Care School of Public Health at Brown University Center For Gerontology and Healthcare Research Office of Program Performance and Evaluation Rhode Island Housing Resources Commission Chief Operating Officer Tri-Town Community Action Agency Executive Director Rhode Island Health Center Association Chief Executive Officer Comprehensive Community Action Program Interim President and Chief Executive Officer Neighborhood Health Plan of Rhode Island Chief Executive Officer Thundermist Health Center Executive Director Blackstone Community Health Center President BCOG Planning Associates Chief Executive Officer Wood River Health Services 8

13 Christopher Little Patricia Martinez Pablo Rodriguez, M.D. Dennis Roy Merrill Thomas Peter Walsh Attorney Little, Medeiros, Kinder, Bulman, & Whitney, PC Central Falls Schools Chief Executive Officer Women s Care Chief Executive Officer East Bay Community Action Program Chief Executive Officer Providence Community Health Center, Inc. Director of External Affairs, Rhode Island Housing Officers The Bylaws provide that the principal officers of the Corporation shall be chair, vice chair, president, secretary and treasurer. The board may appoint vice presidents and such other officers as they may from time to time authorize, which additional officers shall have the powers and duties assigned by the board. To the extent permitted by law and the Bylaws, any two or more offices may be held by the same person. The Bylaws provide that each officer other than the president (who serves at the will of the board) shall be elected by the board for a term of two (2) years, or until a respective successor is duly elected and qualified, or until such officer s earlier death, removal or resignation. All principal officers, except the president, may serve a maximum of two (2) consecutive two (2) year terms in the same office. 9

14 The Bylaws state that the principal officers shall have the powers and perform the duties commonly incident to their respective offices, including the power and duties listed in the Bylaws. Officers shall have such additional powers and duties as the directors may designate from time to time. A principal officer may delegate such of his or her powers as he/she deems advisable, except those powers which by law, the Articles of Incorporation, or the Bylaws may not be so delegated, to such persons as the board or the principal officer may designate from time to time. The officers elected or approved by the Board of Directors and serving at December 31, 2013, were as follows: Merrill Thomas Jane Hayward James A. Hooley Peter Walsh Brenda Dowlatshahi Thomas Clark Phillip, Jr. CPA. Francisco Trilla, M.D. Shantha Diaz Chair Vice Chair Interim President & Chief Executive Officer Treasurer Secretary Chief Financial Officer Chief Medical Officer Chief Operating Officer Committees The Bylaws stipulate that the following standing committees of the board of directors shall be established: Executive Committee Nominating Committee Planning Committee In addition to the standing committees, the board of directors may designate such other committees as the board deems appropriate, each of which shall consist of at least two (2) or more directors. The chair or president shall appoint the chair of each committee and the 10

15 nominating committee shall appoint its members, except that: (i) the treasurer of the Corporation shall be the chair of the finance committee, ex officio; (ii) the executive committee will be composed of the chair, vice chair, president, secretary, treasurer and the chair of the nominating committee, and; (iii) the nominating committee shall be appointed by the board. Non-board committee members may be appointed and shall have the right to vote on committee matters in the case of advisory committees that do not have the authority to bind the board or the Corporation. Each committee shall have and may exercise all of the authority delegated to it by the board in the resolution that established the committee. At December 31, 2013, the following committees in addition to the standing committees of the board were established: Clinical Affairs Committee Audit/Finance Committee Organizational Development and Human Resources Committee Investment Committee For the period under examination, NHPRI s various committee charters were reviewed. As noted in our prior examination report, the Audit Committee Charter requires that each committee member complete a bi-annual self-assessment and review the results with the finance committee. Although NHPRI responded to our prior examination report recommendation that they would develop and complete a bi-annual self-assessment, the audit committee members never completed the assessment. 11

16 Recommendation No. 1 It is again recommended that the members of the audit committee comply with the specific requirements of the Audit Committee Charter and complete a bi-annual self-assessment. Conflict of Interest During the period covered by this examination, the Corporation had in place a formal Code of Conduct developed by the human resources department. The Code of Conduct is intended to provide employees with: An understanding of NHPRI s mission, vision and values, Increased awareness concerning NHPRI conforming to the highest ethical standards and strict compliance with the laws, and The tools required to assist NHPRI to fulfill its mission, to conform to its standards and to comply with all applicable laws. Each employee is required to read the Code of Conduct, and sign an acknowledgement on an annual basis. Neighborhood has also instituted a formal policy and procedure ( policy ) relating to conflicts of interest, which applies to all employees. The purpose of this policy is to ensure the integrity of decisions made on behalf of the organization as business decisions made by every employee of NHPRI must be free of personal bias, interest or gain. The policy addresses what activities each employee can and cannot engage in. Article X of the Bylaws addresses conflicts of interest for directors and officers. Article X requires the disclosure of any actual or possible conflicts of interest. Violations of this provision will result in immediate disciplinary and corrective action. 12

17 A review of signed conflict of interest statements revealed that not all officers completed the conflicts of interest for the period under examination. Recommendation No. 2 It is recommended that employees, including the officers of NHPRI complete annually a signed conflict of interest statements. Corporate Records The Articles of Incorporation state that the Corporation is constituted to provide and arrange for the provision of human and health care services, to be and qualify to act and engage as a health maintenance organization as defined in the Rhode Island Health Maintenance Organization Act of 1983, as amended, and to engage in any other lawful act or activity for which corporations may be organized under the Rhode Island Corporation Act. The Corporation s Certificate of Authority to operate as a licensed health maintenance organization within the State of Rhode Island was issued by the Insurance Division of the Rhode Island Department of Business Regulation. The records of the meetings of the members, board of directors, and various committees thereof were reviewed as part of this examination. Based upon the review performed, the meetings appeared to be held in accordance with the Company s bylaws and did not contain evidence of any actions contrary to the Company s charter, bylaws, or the Rhode Island General Laws. 13

18 FIDELITY BOND AND OTHER INSURANCE As of December 31, 2013, NHPRI is named as the insured in an insurance company s fidelity bond with a principal amount of $1,000,000, and a $10,000 deductible. The indemnity under this bond exceeds the minimum amount of fidelity insurance suggested by the National Association of Insurance Commissioners for the corresponding level of exposure. The Corporation also had in place insurance policies that included commercial umbrella, fiduciary liability, workers compensation, commercial property and liability, managed care errors and omissions, directors and officers and liability, employment practice liability, privacy and security liability, and hired and non-hired auto liability. Management has determined the adequacy of coverage for all insurable assets of the Corporation. OFFICER AND EMPLOYEE WELFARE AND PENSION PLANS All employees are retained by Neighborhood Health Plan of Rhode Island on an at-will basis. While the chief operating officer and chief medical officer have written employment agreements, they are also on an at-will basis and not time bound in position. The current chief executive officer and chief financial officer are currently on an interim basis, and therefore have a time bound employment contract. Under normal circumstances, the senior executives at NHPRI are retained on an at-will basis. NHPRI provides its employees with an array of benefits, including paid holidays, paid time off, medical and dental coverage, short-term and long-term disability insurance, and group life insurance. NHPRI provides health insurance choices by contracting with one health 14

19 insurer and allowing each employee to choose the level of health benefits that are best suited for them. NHPRI also contributes a pre-specified match to eligible employees in the Plan sponsored 401(k) plan. NHPRI also promotes tax-saving initiatives by sponsoring a Section 125 Plan, a pretax dependent care and medical expense program. TERRITORY AND PLAN OF OPERATION The Corporation is licensed to operate only in the State of Rhode Island. The Corporation is a network model HMO with headquarters in Providence, Rhode Island, and serves members in Bristol, Kent, Newport, Providence and Washington counties in Rhode Island. NHPRI contracts for the provision of comprehensive health care services to its membership with participating provider groups (eight of which are founding non-profit Community Health Centers), hospitals and other specialty health care providers. NHPRI delivers comprehensive healthcare services on a prepaid basis principally to Medicaid recipients and participants in HealthSource RI (the Rhode Island Health Benefits Exchange) As of December 31, 2013 NHPRI serves five Medicaid populations in Rhode Island: 1) Families with low to moderate income; 2) Children with special health care needs; 3) All children in the Rhode Island foster care system; 4) Medicaid-only adults with disabilities; and; 5) Dually eligible Medicare/Medicaid beneficiaries (Medicaid benefits only). Neighborhood is one of two companies presently under contract to serve Medicaid managed care populations. 15

20 As of January 1, 2014, NHPRI began serving individuals (with low income) and small businesses through HealthSource RI and the Medicaid expansion population. GROWTH OF COMPANY The following table shows the business trend (in dollars) of NHPRI for the most recent five years, as reported in its filed Annual Statements ($000 s): Net Premiums Written $426,398,776 $425,980,651 $429,783,673 $384,640,068 $337,045,189 Net Underwriting Gain/(Loss) ($3,122,230) ($2,150,981) $12,434,049 $14,198,199 ($20,697,532) Net Income (Loss) ($3,795,139) ($676,274) $11,153,656 $13,375,903 ($19,727,659) Total Admitted Assets $134,475,983 $149,497,178 $155,028,299 $113,493,136 $108,341,478 Total Liabilities $98,729,173 $107,424,860 $111,661,009 $80,749,490 $89,527,612 Capital and Surplus $35,746,810 $42,072,318 $43,367,290 $32,743,646 $18,813,866 LOSS EXPERIENCE NHPRI s Hospital and Medical and Claim Adjustment Expenses ( CAE ) incurred as a percentage of Earned Premiums for the most recent five years, as reported in its filed Annual Statements are as follows: Hospital and Medical CAE

21 REINSURANCE On a yearly basis the Corporation enters into a reinsurance agreement with an independent reinsurer, to limit its losses on individual claims. Under the terms of an Excess of Loss Reinsurance Agreement effective April 1, 2013, the reinsurer provides coverage for inpatient hospital expenses incurred by covered persons. Covered persons include members who are covered under the Corporation s policies issued for RIte Care, Sub Care, Children with Special Healthcare Needs, and Rhody Health Partners. Neighborhood s new business Rhody Health Option - Phase One, Medicaid Expansion, and Health Exchange went live on November 1, 2013 and January 1, 2014, respectively. The Corporation amended the existing reinsurance contract to cover these new populations, effective November 1, 2013 and January 1, 2014, respectively. Under the terms of the reinsurance agreement, the reinsurer will reimburse NHPRI for 90% of eligible hospital and other inpatient hospital expenses, in excess of a $350,000 deductible, limited to a maximum of $3,000,000 per covered person per contract period. The reinsurance agreement contains an endorsement that provides for the continuation of coverage in the event of insolvency of the Corporation while the agreement is in force. Under the terms of the endorsement, the reinsurer is obligated to reimburse expenses incurred by covered persons based upon the terms and conditions of the policies of coverage without limitation of the reinsurance agreement. The continuation of coverage endorsement creates a liability to the reinsurer for payment of benefits that would have been paid or provided by the Corporation for claims incurred by covered persons after the date of insolvency. In no event shall the reinsurer s liability under this endorsement be greater than the Corporation s obligation under the policies of coverage between the Corporation and its covered persons, 17

22 including the obligation of participating providers. The aggregate maximum liability to the reinsurer pursuant to this insolvency provision is $5,000,000. A review of the reinsurance agreement in effect at December 31, 2013 revealed that it contained the proper provisions as required under Rhode Island General Laws and which state the following, respectively: Reinsurance is payable by the assuming company on the basis of the liability of the ceding company under the contract or contracts reinsured without diminution because of the insolvency of the ceding company. Payments by the assuming company shall be made directly to the ceding company or to its liquidator, receiver, or statutory successor, except where the contract specifically provides another payee of such reinsurance in the event of the insolvency of the ceding company, or where the assuming company, with the consent of the direct insured or insureds, has assumed the policy obligations. In addition to the reinsurance agreement, the RIte Care contract includes stop-loss provisions for certain services, including the services identified in section 1.40 Stop-Loss of the RIte Care contract. Certain neonatal services are carved out of the RIte Care contract and in exchange for a reduction in premium to the plan, the State of Rhode Island assumes the medical costs for certain neonatal services. 18

23 ACCOUNTS AND RECORDS The accounts and records of the Corporation are processed and maintained by personnel and information systems located at its home office in Providence, Rhode Island. Information Systems A limited review of the NHPRI s general information technology controls was performed to ascertain the financially significant systems in place, gain an overall understanding of the NHPRI's information technology environment, and to determine the appropriate controls that should be reviewed in order to evaluate the effectiveness of the IT controls that are in place to mitigate the identified risks. Reviews of the selected risks were performed to determine whether the applicable mitigating controls appeared to be designed and operating effectively during the examination period. This was done utilizing information provided by NHPRI including various documents and records, and discussions with responsible staff. This review was performed in accordance with the guidance established by the NAIC. Independent Audit The Corporations is audited annually by an independent accounting firm and audited financial reports were filed with the Insurance Division for all years under examination, as required pursuant to Rhode Island Insurance Regulation 87 (Annual Financial Reporting). The accounting firm s work papers from its 2013 audits were reviewed and utilized to supplement the examination process, and to avoid duplication of work where deemed appropriate. 19

24 STATUTORY RESERVES Rhode Island General Laws and (c) (2) require the following ongoing financial requirements: (a) A health maintenance organization shall maintain minimum net worth equal to the greater of two million five hundred thousand dollars ($2,500,000) or the amount necessary to maintain capital required pursuant to ("Rhode Island Risk-Based Capital (RBC) for Health Organizations Act"). (b) The amount in subsection (a) may be adjusted annually for inflation at the director s discretion. (c) Pursuant to (c)(2), the insurance commissioner may waive any of net worth and/or total adjusted capital requirements if 85% or greater of the health organization s members are participants in RIte Care program administered by the State of Rhode Island, and the health organization has contracts with insurers, hospital or medical service corporations, governments, or other organizations that are sufficient to reasonably assure the performance of its obligations, provided, that in no event shall the net worth or total adjusted capital requirement be less than one hundred thousand dollars ($100,000). At December 31, 2013 the Corporation was found to be in compliance with the statutory net worth and total adjusted capital requirements of the above-referenced law. 20

25 FINANCIAL STATEMENTS The financial condition of the Corporation and the results of its operations are presented in the following financial statements and exhibits: Comparative Statement of Assets, Liabilities and Capital and Surplus December 31, 2013 and December 31, 2009 Statement of Revenue and Expenses Year ended December 31, 2013 Capital and Surplus Account December 31, 2012 to December 31, 2013 Reconciliation of Surplus December 31, 2009 to December 31, 2013 Analysis of Examination Adjustments December 31,

26 NEIGHBORHOOD HEALTH PLAN OF RHODE ISLAND COMPARATIVE STATEMENT OF ASSETS, LIABILITIES AND CAPITAL AND SURPLUS DECEMBER 31, 2013 AND DECEMBER 31, 2009 ASSETS December 31, 2013 December 31, 2009 Bonds $47,207,214 $32,184,023 Common stocks 0 1,904,530 Cash $31,786,987, and short-term investments $45,688,411 77,475,398 63,928,367 Investment income due and accrued 275, ,060 Uncollected premiums and agents balances in course of collection 1,382,755 2,061,074 Amounts recoverable from reinsurers 770,424 1,168,546 Amounts receivable relating to uninsured plans 0 134,969 Electronic data processing equipment and software 320, ,057 Health care and other amounts receivable 1,878,688 4,813,317 Other receivable 5,158,318 33,625 Accounts receivable-grants 6,845 0 Total Assets $134,475,983 $106,626,568 LIABILITIES, CAPITAL AND SURPLUS December 31, 2013 December 31, 2009 Claims unpaid $36,265,398 $35,912,787 Accrued medical incentive pool and bonus amounts 4,398,007 4,508,553 Unpaid claims adjustment expenses 1,030, ,649 Aggregate health policy reserves 8,617,962 0 Premium deficiency reserve 0 11,100,000 Premiums received in advance 41,885,960 27,613,318 General expenses due and accrued 6,143,189 3,161,066 Amounts withheld or retained for the account of others 382,613 1,017,647 Payable for securities 0 1,611,430 Liability for amounts held under uninsured plans 0 1,323,162 Unclaimed property payable 5,273 0 Total Liabilities 98,729,173 87,154,612 Surplus notes 1,000,000 1,500,000 Unassigned funds (surplus) 34,746,810 17,971,956 Total Capital and Surplus $35,746,810 $19,471,956 Total Liabilities, Capital and Surplus $134,475,983 $106,626,568 22

27 NEIGHBORHOOD HEALTH PLAN OF RHODE ISLAND STATEMENT OF REVENUE AND EXPENSES YEAR ENDED DECEMBER 31, 2013 Revenues: Net premium income $426,398,776 Executive Office of Health and Human Services (EOHHS) Incentive Income 1,751,471 Total revenues 428,150,247 Hospital and Medical: Hospital/medical benefits $144,857,578 Other professional services 90,136,296 Outside referrals 55,148,130 Emergency room and out-of-area 23,809,378 Prescription drugs 58,423,639 Stop loss/risk share recoveries from EOHHS (1,541,106) Gain share due to EOHHS 5,546,360 Incentive pool, withhold adjustments and bonus amounts 7,795,924 Subtotal 384,176,199 Less: Net reinsurance recoveries 1,568,256 Total hospital and medical 382,607,943 Claims adjustment expenses (including cost contain $6,169,901) 11,650,196 General administrative expenses 41,314,338 Increase in reserves for life and accident and health contracts (4,300,000) Total underwriting deductions 431,272,477 Net underwriting gain or (loss) (3,122,230) Net investment income earned 163,707 Net realized capital gains (losses) 25,267 Net investment gains (losses) 188,974 Net gain or (loss) from agents or premium balances charged off 18,580 Miscellaneous income (880,463) Subtotal (861,883) Net Income (loss) ($3,795,139) 23

28 NEIGHBORHOOD HEALTH PLAN OF RHODE ISLAND CAPITAL AND SURPLUS ACCOUNT DECEMBER 31, 2012 TO DECEMBER 31, 2013 Capital and Surplus, December 31, 2012 $42,072,318 Increase in Surplus Decrease in Surplus Net Loss $3,795,139 Change in Net Unrealized Capital Gains $52,751 Change in Non-Admitted Assets 2,583,120 52,751 6,378,259 Net Change in Capital and Surplus (6,325,508) Capital and Surplus, December 31, 2013 $35,746,810 24

29 NEIGHBORHOOD HEALTH PLAN OF RHODE ISLAND RECONCILIATION OF CAPITAL AND SURPLUS DECEMBER 31, 2009 TO DECEMBER 31, 2013 Capital and Surplus, December 31, 2009 $19,471,956 Gains and Losses to Capital and Surplus Net income or (loss) $19,400,056 Change in unrealized capital gains or (losses) 172,384 Change in nonadmitted assets (2,797,586) Change in surplus note (500,000) Net change in capital and surplus 16,274,854 Capital and Surplus, December 31, 2013 $35,746,810 25

30 NEIGHBORHOOD HEALTH PALN OF RHODE ISLAND ANALYSIS OF EXAMINATION ADJUSTMENTS DECEMBER 31, 2013 The examination of the Corporation performed as of December 31, 2013, did not disclose any material misstatements to the financial statements contained in its 2013 Annual Statement filing. Accordingly, the amounts reported by the Corporation have been accepted for purposes of this report. 26

31 ASSETS Bonds $47,207,214 The above amount is the net admitted value of bonds held by the Corporation at December 31, 2013 and is the same amount reported by the Corporation in its 2013 Annual Statement. All of the Corporation s bonds are held in accordance with the terms of custodial agreements with third party financial institutions. The quality ratings of all securities included in the Corporation s bond portfolio were reviewed based upon criteria established by the National Association of Insurance Commissioners ( NAIC ). It was noted that 99.6% of the bond portfolio represented class 1, with the remaining.4% represented as class 2 securities, which are bonds of the highest and high quality respectively, according to the NAIC rating system. The book value, fair value, actual cost and par value of the bond portfolio at December 31, 2013, are as follows: Book/Adjusted Carrying Value Fair Value Actual Cost Par Value $47,207,214 $46,424,067 $47,564,582 $45,333,307 Cash and Short-term Investments $77,475,398 Cash $31,786,987 Short-term Investment $45,688,411 27

32 The above amounts are the same amounts reported by the Corporation in its 2013 Annual Statement. All of the Corporation s short-term investments are held in accordance with the terms of custodial agreements with third party financial institutions. LIABILITIES Claims Unpaid $36,265,398 Accrued Medical Incentive Pool and Bonus Amounts $4,398,007 Unpaid Claims Adjustment Expenses $1,030,771 Aggregate Health Policy Reserves $8,617,962 The significant actuarially-determined amounts above are the same as those reported in the Corporation s 2013 Annual Statement. The reserve calculations prepared by the Corporation were reviewed by Lewis & Ellis, Inc. ( L&E ), consulting actuaries for the State of Rhode Island Insurance Division. L&E relied upon the underlying data reported by the Corporation, and their analyses included a review of the actuarial assumptions and methods used by the Corporation in determining the reserves, and such tests of actuarial calculations as deemed necessary. In assisting L&E with their analysis, the examiners either independently performed or relied upon the procedures performed by the Corporation s independent accounting firm to verify the integrity of the underlying claims data, including completeness testing. A combination of subjective and statistical sampling techniques were utilized in testing the claims data, as deemed appropriate. 28

33 CAPITAL AND SURPLUS Total Capital and Surplus $35,746,810 The total capital and surplus as shown above is the same as that reported by NHPRI in its 2013 Annual Statement and consists of the following: Surplus notes $ 1,000,000 Unassigned funds (surplus) 34,746,810 Total Capital and Surplus $35,746,810 29

34 SUMMARY OF RECOMMENDATIONS No. Recommendation Page No. 1 It is again recommended that the members of the Audit Committee comply with the specific requirements of the Audit Committee Charter and complete a bi-annual self-assessment It is recommended that employees, including the officers of NHPRI complete annually a signed conflict of interest statements. 13 SUBSEQUENT EVENTS A review of the minutes of the board of directors meetings for the period subsequent to the examination period was performed to ascertain whether any subsequent events have occurred that would have a material impact on the NHPRI s operations or financial statements. In addition, an inquiry was made of the NHPRI s management regarding subsequent events. Based upon our review, the following significant event occurred subsequent to the period covered by this examination requiring disclosure: Change in Management Effective September 1, 2014, Peter Marino replaced James Hooley as the Chief Executive Officer. Changes in Underwriting NHPRI began serving two new populations under the Affordable Care Act with effective dates January 1, 2014, the Rhode Island Health Benefits Exchange and Medicaid Expansion. In addition, NHPRI continued enrolling members in a program that began on November 1, 2013 covering a population eligible for both Medicaid and Medicare (Rhody Health Options Phase One). 30

35 CONCLUSION We have applied verification procedures to the data and information contained in this report using sampling techniques and other examination procedures as deemed appropriate. While sampling and other examination procedures do not give complete assurance that all errors and irregularities will be detected, had any been detected during the course of this examination, such errors and/or irregularities would have been disclosed in this report. Other than what has been noted in the body of this report, we were not informed of, and did not become aware of any errors or irregularities that could have a material effect on the financial condition of the Corporation as presented in this report. Acknowledgment is made of the services rendered by Lewis & Ellis, Inc., the Rhode Island Insurance Division s consulting actuaries. Assisting in the examination with the undersigned and representing the Rhode Island Insurance Division were David Paolantonio, CFE, CFSA, CISA, AES, Insurance Examinerin-charge, Debra Almeida, CFE, Senior Insurance Examiner; and Anthony Humphrey, Insurance Examiner. Respectfully submitted, Louis A. Gabriele, CPA, CFE Insurance Examiner-In-Charge State of Rhode Island 31