Iowa Comprehensive Health Association

Transcription

1 AUDITED FINANCIAL STATEMENTS Iowa Comprehensive Health Association Years ended December 31, 2015 and 2014 with Report of Independent Auditors

2 Audited Financial Statements Years ended December 31, 2015 and 2014 Contents Report of Independent Auditors 1 Audited Financial Statements Balance Sheets 2 Statements of Operations and Unassigned Surplus 3 Statements of Cash Flows 4 Notes to Financial Statements 5

3 Report of Independent Auditors Board of Directors Iowa Comprehensive Health Association Report on the Financial Statements We have audited the accompanying financial statements of Iowa Comprehensive Health Association (a nonprofit corporation), which comprise the balance sheets as of December 31, 2015 and 2014 and the related statements of operations and unassigned surplus and cash flows for the years then ended, and the related notes to the financial statements. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to fraud or material error. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of the significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Iowa Comprehensive Health Association as of December 31, 2015 and 2014, and the results of their operations and cash flows for the years then ended in accordance with accounting practices prescribed or permitted by the Insurance Division, Department of Commerce, of the State of Iowa, and with accounting principles generally accepted in the United States of America. April 21,

4 Balance Sheets December Assets Cash and short term investments $ 6,069,208 $ 7,824,552 Premiums receivable 6, ,243 Assessments receivable - 4,855 Due from HIPIOWA-Fed, LLC - - Prepaid expenses and other receivables 33,961 36,874 Total assets $ 6,109,376 $ 8,685,524 Liabilities and unassigned surplus Unpaid claims $ 1,700,000 $ 3,000,000 Unpaid claim adjustment expenses 75, ,500 Unearned premiums 117,239 1,055,957 Assessments payable - 30,722 General expenses due and accrued 28,329 56,036 Other liabilities 12,678 12,392 Total liabilities 1,933,746 4,289,607 Unassigned surplus 4,175,630 4,395,917 Total liabilities and unassigned surplus $ 6,109,376 $ 8,685,524 See accompanying notes and report of independent auditors. 2

5 Statements of Operations and Unassigned Surplus Years ended December Operating revenues: Premiums earned $ 4,849,291 $ 8,942,208 Operating expenses: Policy benefits incurred 11,223,835 23,813,032 Loss adjustment expenses 238, ,180 General and administrative expenses 608, ,243 12,070,957 24,915,455 Operating loss (7,221,666) (15,973,247) Non-operating revenues: Federal grant awards - 359,916 Investment and other income 6,160 24,347 6, ,263 Loss before assessments (7,215,506) (15,588,984) Assessments 6,995,219 13,927,303 Change in unassigned surplus (220,287) (1,661,681) Unassigned surplus at beginning of year 4,395,917 6,057,598 Unassigned surplus at end of year $ 4,175,630 $ 4,395,917 See accompanying notes and report of independent auditors. 3

6 Statements of Cash Flows Years ended December Operating activities Premiums collected $ 4,696,544 $ 8,913,657 Benefits paid (12,582,350) (26,682,532) General administrative expenses paid (845,052) (1,077,131) Cash used by operating activities (8,730,858) (18,846,006) Investing activities Net investment income (loss) 6,160 24,347 Cash provided by investing activities 6,160 24,347 Financing activities Assessments collected 6,969,353 13,953,170 Federal grant proceeds - 359,916 Cash provided by financing activities 6,969,353 14,313,086 Net decrease in cash and short-term investments (1,755,345) (4,508,573) Cash and short-term investments at beginning of the year 7,824,552 12,333,125 Cash and short-term investments at end of the year $ 6,069,207 $ 7,824,552 See accompanying notes and report of independent auditors. 4

7 Notes to Financial Statements December 31, 2015 and Organization and Significant Accounting Policies Organization Iowa Comprehensive Health Association ( ICHA ), a nonprofit corporation, was established by the State of Iowa to make health care coverage available for eligible persons in Iowa who would not otherwise be able to obtain such coverage. ICHA has the authority, under state law, to assess insurance companies writing health premiums in Iowa for all net losses of ICHA. Presently, assessments are made as funds are needed. Section 514E of the Code of Iowa was amended in 2001 to expand the oversight authority of ICHA to include administering the actions of a common Board of Directors of ICHA and the Iowa Health Benefit Reinsurance Association (the Reinsurance Association ), a nonprofit corporation under section 513C.10 of the Code of Iowa. As ICHA does not have an economic interest in the Reinsurance Association, the accompanying financial statements do not include the operations of the Reinsurance Association. Basis of Presentation The accompanying financial statements have been prepared, except as to form, on the basis of accounting practices prescribed or permitted by the Insurance Division, Department of Commerce, of the State of Iowa. Such practices may vary from accounting principles generally accepted in the United States of America ( GAAP ). However, the effect of such variances is not considered to be material and the financial statements are also considered to be in conformity with GAAP. Use of Estimates The preparation of financial statements requires management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Such estimates and assumptions could change in the future as more information becomes known, which could impact the amounts reported and disclosed herein. Cash and Short-term Investments Cash and short-investments include all highly liquid investments with a remaining maturity of three months or less at the date of acquisition. Short-term investments consist of U.S. Treasury bills recorded at cost, which approximates market. 5

8 Notes to Financial Statements (continued) December 31, 2015 and Organization and Significant Accounting Policies Assessments Assessments of the insurer members are approved by the Board of Directors and are recognized as a contribution to unassigned surplus. Assessments are made periodically and are based on projected cash flow needs. Assessments receivable represents outstanding balances assessed to insurance companies but not yet collected, and assessments payable represents amounts overpaid by insurance companies and are to be refunded. Unpaid Claims The liabilities for unpaid claims and related expenses are estimated based on historical claim development, including the effects of six-month pre-existing condition exclusion. Considerable variability is inherent in such estimates. However, management believes that liabilities for unpaid claims and related expenses are adequate. The estimates are continually reviewed and updated as experience develops or new information becomes known; such adjustments are reflected in current operations. Premium deficiencies are not recognized as ICHA has the statutory authority to assess member plans for operating losses. Revenue Recognition Premiums are earned pro rata over the periods to which the premiums relate. Unearned premiums and premiums billed and unpaid include amounts for premiums billed in advance of the policy effective date. Concentration of Credit Risk Deposits at ICHA s financial institution are insured by the Federal Deposit Insurance Corporation up to $250,000. ICHA has not experienced a loss due to uninsured balances. Income Taxes The Internal Revenue Service has determined that ICHA qualifies as a tax-exempt organization under Section 501(c)(6) of the Internal Revenue Code ("IRC") and is, therefore, not subject to tax under present income tax law. ICHA is required to operate in conformity with the IRC to maintain its qualification. ICHA is also exempt from Iowa state income taxes. 6

9 Notes to Financial Statements (continued) December 31, 2015 and Organization and Significant Accounting Policies Income Taxes (continued) In consideration of Accounting Standards Codification Income Taxes, ICHA has not taken any uncertain tax positions that should be recognized in the accompanying financial statements. ICHA s 2014, 2013 and 2012 tax returns are subject to examination by the Internal Revenue Service. Pre-Existing Condition Insurance Pool ICHA was the single member of HIPIOWA-FED, LLC ( HIPIOWA-FED ), formed in 2010 to administer the U. S. Department of Health and Human Services ( HHS ) temporary health insurance program to individuals residing in the State of Iowa who previously have been uninsured. The contract with HHS called for HHS to pay HIPIOWA-FED for claims paid in excess of premiums received, and for administrative expenses. HHS made funds available to all states for similar health insurance programs. Effective June 30, 2013, the administration of HIPIOWA-FED was transitioned to the federal government. HIPIOWA-FED has been processing run-out claims for an additional eighteen months; claims that were incurred on or prior to June 30, 2013 and were timely reported have been paid in accordance with the policy provisions. Effective December 31, 2014, HIPIOWA-FED ceased all operations and the program was terminated. 2. Federal Grant During 2014, the Department of Health and Human Services awarded ICHA a High Risk Pool Operations Grant in the amount of $359,916 to be used to fund operating losses of ICHA. The grant funds have been reported as non-operating revenue in the accompanying statements of operations and unassigned surplus. No grant funds were awarded in Plan Administration Agreement ICHA has outsourced its administrative services to Benefit Management Inc., a Kansas based third party administrator, under a service agreement effective through June In accordance with the agreement, ICHA is charged a per-member-per-month fee based on the number of active members. Total fees paid to Benefit Management Inc. in 2015 and 2014 were $360,000 and $428,384, respectively, and are included in general and administrative expenses in the accompanying statements of operations and unassigned surplus. 7

10 Notes to Financial Statements Notes to Financial Statements (continued) 4. Liability for Unpaid Claims The following table provides a reconciliation of the beginning and ending balances of the liability for unpaid claims: Years ended December Balances at January 1 $ 3,000,000 $ 5,750,000 Policy benefits incurred related to: Current year 11,177,165 23,813,032 Prior years 46,670 - Total policy benefits incurred 11,223,835 23,813,032 Paid related to: Current year 10,813,886 21,637,302 Prior years 1,709,949 4,925,730 Total paid 12,523,835 26,563,032 Balances at December 31 $ 1,700,000 $ 3,000,000 Policy benefits incurred related to prior years varies from previously estimated liabilities as the claims are ultimately settled. The changes in amounts incurred related to prior years are the result of changes in morbidity experience, health care utilization and claim payment patterns. 5. Line of Credit ICHA has a secured revolving line of credit agreement, which provides for borrowing up to a maximum of $2.5 million. There were no outstanding balances at December 31, 2015 or 2014, nor were there any borrowings against this line during 2015 or Subsequent Events In accordance with ASC 855 Subsequent Events, ICHA has evaluated subsequent events through April 21, 2016, the date these financial statements were available to be issued. There were no material subsequent events that required recognition or additional disclosure in these financial statements. 8