Iowa Comprehensive Health Association

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1 AUDITED FINANCIAL STATEMENTS Iowa Comprehensive Health Association Years ended December 31, 2014 and 2013 with Report ofindependent Auditors

2 Audited Financial Statements Years ended December 31, 2014 and 2013 Contents Report of Independent Auditors 1 Audited Financial Statements Balance Sheets.3 Statements of Operations and Unassigned Surplus.4 Statements of Cash Flows 5 Notes to Financial Statements 6

3 Report of Indeptndenl Audilon Boardof Directors Iowa Comprehensive Heollb Al lo<;ialioo Re po rt OD Ib e F illall eial Stalemn ll We hive audiled!be acoompanying filw>f; ial statements of Iowa Comprehensive Healdl AS5<K:ialion (. nonprofit oorporation), which comprise the balance sheets IS of December 31, and and!be related!jilitcmenlj of operations and W1,",igned, urplw and cash flows for the yean thc11 ended, and!be related ooies to the filw>f;ialstatemenls. M...p melll', Rnpo"'ibility for Ihe, lllud.1slitcmcllb Managcrncnt is responsible for the prepanltion and fair presentalion o f lllne financi. 1Slalemenls in aceordancc with accoun ting princ iples genel"lllly accepted in the United Slales of America; this includes!be design, implementalion and mainlcnance of inlel11lj con ll'ol."levanl 10 the pn:panlion.nd f.ir pn:scnwion of filw>f;ial statcmenll thai arc free from m.terial m i5slacmenl, whelhcr due to fnlud or e rror. AudilOnl' Kc.polll iblilly Our respon sibility is 10 npn:n an opinion OIIlheSC financial staleme nts based on our liudill. We ccnluctcd our a\!diu in acwrdance willl.uditing standards generally aooepted in the United Stales of Ammu. Those standan.f., require that 'Ae plan and perform the audits to obtain reasonable IISS\IfIIlCC about wim:thcr IbcfilW>f; ial stltemcnts are fn:e ofmllcli. 1mintate menl, whcthcr due to fraud or m.t.,...1enuf. An. udit invo lves performing procedures to obtain audit evidence aboul.!he amoun ts and disc losures in the financia l stalements. The procedure. selected depend 011 the. ud ilol"" judgnlent. including the ISsessment of the risk. o f malerial mi sswement of the financi CmenQ.,. whether due 10 fraud or e rror. In making those risk...-smenl5. the.uditor con.idcn internal conll'ol."levant to the entity ', preparalion Ind fair presen tation of financ ial statements in order to design. udil procc<lures that are appropriale in lhe circumslances, hulnol for the purpose of e ~ p re..ing an opi nion on the d fecti vcn.,.. o f lhe enlily 's internal control. Accordingly, we e ~p r=l no such op inion, An. udit llso includes cvllu. ting the a ppropriateness of ICCOlIntinll policies uscd and the reuon.bleness of the significan t accounting mimales made by management. lis well II cvlllllling the OVenlll pn:!ic1lwion ofthe finlilcial ltatemenls, We believe th.l!he.udit evidence we have obtained is sufficient and appropriale to provide: buis for our ludil opinion, Opi Dio. In our opinion, the finlrlcial st. tements referred to above pn:wnt fl irly. in. U material re.peelj, Ihe finan<:i.1 p<ii<ition of Iowa Com prehen.ive tl ealth Associllion lis or Dece mber and and the re.ulu of their ope1lllioos and cub flow s for the ycits then ended in ~ witb IC<X>IInting practices prescribed or pcnnincd by the Insurance Divi.ian, OepaJ1menl of Comme n;e, of lhe Stale of lowl, and 'Aith ICCOIlnlinl principles generally acce pted in the Unit'" States of America.

4 Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated April 2, 2015 on our consideration of Iowa Comprehensive Health Association's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Iowa Comprehensive Health Association's internal control over financial reporting and compliance. April 2,

5 Balance Sheets Assets Cash and short term investments Premiums receivable Assessments receivable Due from HIPIOWA-Fed, LLC Prepaid expenses and other receivables Total assets December $ 7,824, ,243 4,855 36,874 $ 8,685,524 $ 12,333,125 2,228, ,333 $ 14,649,462 Liabilities and unassigned surplus Unpaid claims Unpaid claim adjustment expenses Unearned premiums Assessments payable General expenses due and accrued Other liabilities Total liabilities Unassigned surplus Total liabilities and unassigned surplus $ 3,000, ,500 1,055,957 30,722 56,036 12,392 4,289,607 4,395,917 $ 8,685,524 $ 5,750, ,000 2,492,674 82,798 12,392 8,591,864 6,057,598 $ 14,649,462 See accompanying notes and report ofindependent auditors. 3

6 Statements of Operations and Unassigned Surplus Years ended December Operating revenues: Premiums earned $ 8,942,208 $ 22,471,583 Operating expenses: Policy benefits incurred 23,813,032 44,525,499 Loss adjustment expenses 476, ,248 General and administrative expenses 626,243 1,753,610 24,915,455 46,749,357 Operating loss (15,973,247) (24,277,774) Non-operating revenues: Federal grant awards 359, ,021 Investment and other income 24,347 (1,949) 384, ,072 Loss before assessments (15,588,984) (23,674,702) Assessments 13,927,303 16,999,997 Change in unassigned surplus (1,661,681) (6,674,705) Unassigned surplus at beginning of year 6,057,598 12,732,303 Unassigned surplus at end of year $ 4,395,917 $ 6,057,598 See accompanying notes and report ofindependent auditors. 4

7 Statements ofcash Flows Years ended December Operating activities Premiums collected $ 8,913,657 $ 22,052,235 Benefits paid (26,682,532) (45,000,499) General administrative expenses paid (1,077,130) (2,213,861 ) Cash used by operating activities (18,846,005) (25,162,125) Investing activities Net investment income (loss) 24,347 (1,949) Cash provided by investing activities 24,347 (1,949) Financing activities Assessments collected 13,953,170 16,999,997 Federal grant proceeds 359, ,021 Cash provided by financing activities 14,313,086 17,605,018 Net decrease in cash and short-term investments (4,508,572) (7,559,056) Cash and short-term investments at beginning of the year 12,333,125 19,892,181 Cash and short-term investments at end of the year $ 7,824,553 $ 12,333,125 See accompanying notes and report ofindependent auditors. 5

8 Notes to Financial Statements December 31,2014 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.lO of the Code ofiowa. 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. 6

9 Notes to Financial Statements (continued) December 31,2014 and Organization and Significant Accounting Policies (continued) 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. 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. 7

10 Notes to Financial Statements (continued) December 31,2014 and Organization and Significant Accounting Policies (continued) 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. 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 2013,2012 and 2011 tax returns are subject to examination by the Internal Revenue Service. Pre-Existing Condition Insurance Pool ICHA is the single member of HIPIOWA-FED, LLC ("HlPIOWA-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 has made funds available to all states for similar health insurance programs, and initially allocated $35,000,000 to HIPIOWA FED. Effective June 30, 2013, the administration of HlPIOWA-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, HlPIOWA FED ceased all operations and the program was terminated. 8

11 Notes to Financial Statements (continued) December 31, 2014 and Federal Grant During 2014 and 2013, the Department of Health and Human Services awarded ICHA a High Risk Pool Operations Grant in the amount of$359,916 and $605,021, respectively, 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. 3. 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 2014 and 2013 were $428,384 and $1,011,715, respectively, and are included in general and administrative expenses in the accompanying statements of operations and unassigned surplus. 4. Liability for Unpaid Claims The following table provides a reconciliation of the beginning and ending balances of the liability for unpaid claims: Year ended December Balances at January 1 $ 5,750,000 $ 6,200,000 Policy benefits incurred related to: Current year 23,813,032 44,5419,728 Prior years 5,771 Total policy benefits incurred 23,813,032 44,525,499 Paid related to: Current year 21,637,302 39,928,978 Prior years 4,925,730 5,046,521 Total paid 26,563,032 44,975,499 Balance at December 31 s 3,000,000 $ 5,750,000 9

12 Notes to Financial Statements (continued) December 31, 2014 and Liability for Unpaid Claims (continued) 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 IeRA 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, 2014 or 2013, nor were there any borrowings against this line during 2014 or Subsequent Events In accordance with ASC 855 Subsequent Events, ICRA has evaluated subsequent events through April 2, 2015, 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. 10

Iowa Comprehensive Health Association

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