Statutory-Basis Financial Statements and Supplementary Information and Independent Auditors' Report December 31, 2016 and 2015 AUDIT TAX CONSULTING
Table of Contents Page Independent Auditors' Report... 1 Statutory-Basis Financial Statements Statutory-Basis Balance Sheets... 3 Statutory-Basis Statements of Operations... 4 Statutory-Basis Statement of Changes in Capital and Surplus... 5 Statutory-Basis Statements of Cash Flows... 6 Notes to Statutory-Basis Financial Statements... 7 Supplementary Information Investment Risks Interrogatories... 28 Summary Investment Schedule... 29 Note to Summary Investment Schedule... 31
INDEPENDENT AUDITORS' REPORT The Board of Directors Colorado Access Aurora, Colorado REPORT ON THE FINANCIAL STATEMENTS We have audited the accompanying statutory-basis financial statements of Colorado Access (the "Company"), which are comprised of the statutory-basis balance sheets as of December 31, 2016 and 2015, and the related statutory-basis statements of operations, changes in capital and surplus, and cash flows for the years then ended, and the related notes to the statutory-basis financial statements. MANAGEMENT'S RESPONSIBILITY FOR THE STATUTORY-BASIS FINANCIAL STATEMENTS Management is responsible for the preparation and fair presentation of these statutory-basis financial statements in accordance with accounting practices prescribed or permitted by the Colorado Division of Insurance; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of statutory-basis financial statements that are free from material misstatement, whether due to fraud or error. AUDITORS' RESPONSIBILITY Our responsibility is to express an opinion on these statutory-basis 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 audit to obtain reasonable assurance about whether the statutory-basis financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the statutory-basis financial statements. The procedures selected depend on the auditors' judgment, including the assessment of the risks of material misstatement of the statutory-basis financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity's preparation and fair presentation of the statutory-basis 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 significant accounting estimates made by management, as well as evaluating the overall presentation of the statutory-basis financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. BASIS FOR ADVERSE OPINION ON U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES As described in Note 1 to the statutory-basis financial statements, the financial statements are prepared by the Company on the statutory basis of accounting using accounting practices prescribed or permitted by the Colorado Division of Insurance, which is a basis of accounting other than accounting principles generally accepted in the United States of America.
The Board of Directors Colorado Access Page Two The effects on the financial statements of the variances between the statutory basis of accounting described in Note 1 and accounting principles generally accepted in the United States of America, although not reasonably determinable, are presumed to be material. ADVERSE OPINION ON U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES In our opinion, because of the significance of the matter discussed in the Basis for Adverse Opinion on U.S. Generally Accepted Accounting Principles section, the financial statements referred to above do not present fairly, in accordance with accounting principles generally accepted in the United States of America, the financial position of Colorado Access as of December 31, 2016 and 2015, or the results of its operations or its cash flows for the years then ended. OPINION ON STATUTORY-BASIS OF ACCOUNTING In our opinion, the statutory-basis financial statements referred to above present fairly, in all material respects, the financial position of Colorado Access at December 31, 2016 and 2015, and the results of its operations, changes in capital and surplus, and cash flows for the years then ended, in accordance with the statutory basis of accounting described in Note 1. REPORTING ON SUPPLEMENTARY INFORMATION Our audit of the December 31, 2016, statutory-basis financial statements was conducted for the purpose of forming an opinion on the statutory-basis financial statements as a whole. The supplementary Investment Risks Interrogatories and Summary Investment Schedule of the Company as of December 31, 2016, and for the year then ended, are presented for purposes of additional analysis and are not a required part of the statutory-basis financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the statutory-basis financial statements. The effects on the supplementary information for the variances between the statutory basis of accounting described in Note 1 and accounting principles generally accepted in the United States of America, although not reasonably determinable, are presumed to be material. As a consequence, the supplementary information does not present fairly such information, in conformity with accounting principles generally accepted in the United States of America. The supplementary Investment Risks Interrogatories and Summary Investment Schedule have been subjected to the auditing procedures applied in the audits of the statutory-basis financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the statutory-basis financial statements or to the statutory-basis financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in accordance with the statutory basis of accounting described in Note 1, in all material respects, in relation to the statutory-basis financial statements as a whole. OTHER MATTER As discussed in Note 2 to the statutory-basis financial statements, the December 31, 2015, statutory-basis financial statements have been restated to correct the accounting for the investment in a subsidiary. Our opinion is not modified with respect to that matter. May 19, 2017 Denver, Colorado EKS&H LLLP
Statutory-Basis Balance Sheets Admitted Assets December 31, 2016 2015 (Restated) Cash and short term investments $ 47,587,636 $ 17,343,339 Equity interests (Note 1) (4,778,578) (5,924,093) Cash and invested assets 42,809,058 11,419,246 Amounts receivable from uninsured plans 1,915,142 1,477,110 Health care receivables 16,824,386 25,343,057 Premium receivable from the State of Colorado 976,291 3,019,991 Amounts recoverable from reinsurers 118,864 - Receivables from affiliates 534 3,033,294 Other admitted assets 230,327 34,637 Total admitted assets $ 62,874,602 $ 44,327,335 Liabilities, Capital, and Surplus Liabilities Medical claims payable and insolvency reserve $ 23,906,743 $ 24,438,428 Loss adjustment expense reserve 345,732 24,882 Payable to the State of Colorado 22,259,984 19,394,855 Deferred revenue 1,408,973 - Accrued medical incentive pool 3,275,915 39,916 Amounts due to affiliates 676,974 606 General expenses due and accrued 63,050 128,193 Total liabilities 51,937,371 44,026,880 Capital and surplus Contributed capital 2,300,000 2,300,000 Surplus notes 5,833,000 3,833,000 Unassigned surplus 2,804,231 (5,832,545) Total capital and surplus 10,937,231 300,455 Total liabilities, capital, and surplus $ 62,874,602 $ 44,327,335 See notes to statutory basis financial statements. - 3 -
Statutory-Basis Statements of Operations For the Years Ended December 31, 2016 2015 (Restated) Premiums and other revenues Premiums, net of reinsurance paid $ 244,124,377 $ 258,747,577 Net investment income (104,928) 189,589 Other revenues 1,015,646 328,772 Total premiums and other revenues 245,035,095 259,265,938 Health benefits paid or provided 222,299,948 245,878,449 General expenses 14,863,100 26,834,863 Total health benefits paid or provided and general expenses 237,163,048 272,713,312 Other than temporary impairment - 8,093,895 Net income (loss) $ 7,872,047 $ (21,541,269) See notes to statutory basis financial statements. - 4 -
Statutory-Basis Statement of Changes in Capital and Surplus For the Years Ended December 31, 2016 and 2015 Contributed Unassigned Total Capital Capital Surplus Notes Surplus and Surplus Balances at December 31, 2014 $ 2,300,000 $ 1,250,000 $ 15,737,657 $ 19,287,657 Restatement (Note 2) - - (4,718,028) (4,718,028) Balances at December 31, 2014 (restated) 2,300,000 1,250,000 11,019,629 14,569,629 Net loss - - (21,541,269) (21,541,269) Issuance of surplus notes - 2,583,000-2,583,000 Changes in unrealized losses on equity interests (restated) - - 653,796 653,796 Change in non admitted assets - - 4,035,299 4,035,299 Balances at December 31, 2015 (restated) 2,300,000 3,833,000 (5,832,545) 300,455 Net income - - 7,872,047 7,872,047 Issuance of surplus notes - 2,000,000-2,000,000 Changes in unrealized losses on equity interests - - 1,147,283 1,147,283 Change in non admitted assets - - (382,554) (382,554) Balances at December 31, 2016 $ 2,300,000 $ 5,833,000 $ 2,804,231 $ 10,937,231 See notes to statutory basis financial statements. - 5 -
Statutory-Basis Statements of Cash Flows For the Years Ended December 31, 2016 2015 (Restated) Premiums received, net of reinsurance paid $ 245,262,503 $ 253,687,540 Net investment and other income received/paid (104,928) (52,985) Benefits paid (210,668,540) (252,171,230) General expenses paid (12,871,830) (30,875,722) Net cash provided by (used in) operating activities 21,617,205 (29,412,397) Investing activities Proceeds from sale of investments - 5,323,050 Net cash provided by investing activities - 5,323,050 Financing and miscellaneous activities Surplus notes issued 2,000,000 2,583,000 Other cash provided 6,627,092 9,555,471 Net cash provided by financing and miscellaneous activities 8,627,092 12,138,471 Net increase (decrease) in cash and short term investments 30,244,297 (11,950,876) Cash and short term investments at beginning of year 17,343,339 29,294,215 Cash and short term investments at end of year $ 47,587,636 $ 17,343,339 See notes to statutory basis financial statements. - 6 -
Notes to Statutory-Basis Financial Statements Note 1 - Nature of Operations and Significant Accounting Policies Colorado Access (the "Company") was incorporated as a not-for-profit corporation on December 14, 1994. The Company currently has three Sponsor Organizations: the University of Colorado Hospital Authority and University Physicians, Inc., Children's Hospital Colorado, and Colorado Community Managed Care Network (collectively referred to herein as the "Sponsor Organizations"). The Company receives all of its premium revenue from contracts with the State of Colorado (the "State") or from the federal government's Centers for Medicare and Medicaid Services ("CMS"). All premiums are paid on a capitated basis. For State programs, the State sets the rates based on eligibility categories or age and poverty level bands. The rates for Medicare are individually risk adjusted based on the health status of each individual member. The Company receives capitation payments once per month. Since June 1998, the Company has had a contract with the State to arrange for behavioral health care services for Medicaid members residing in the city and county of Denver as a Behavioral Health Organization ("ABC-D"). The Company has also been a health maintenance organization participant in the State's Child Health Plan Plus ("CHP+") program since July 1998. Under CHP+, the Company is responsible for arranging physical and behavioral health care services for children from low-income families who are not eligible for Medicaid. At the beginning of 2005, the Company commenced operating a Medicare special needs plan ("SNP") under the authority of CMS. This program is for individuals who are dual eligible for both Medicare and Medicaid. During 2006, the Company commenced operations as a prescription drug plan ("PDP") and added additional benefits under Part D of the Medicare program to the Medicare SNP. In February 2014, the Company was awarded the Behavioral Health Services Program for the Northeast region of the State ("ABC-NE"). The contract commenced July 1, 2014. To the extent capitated premiums do not cover the costs associated with the members in these programs, the Company is required by the Commissioner of the Division of Insurance of the Department of Regulatory Agencies of the State of Colorado ("DOI") to carry sufficient reserves, insurance protection, or both, to cover such costs. The Company operated a Medicare PDP and includes the Medicare prescription drug program under Medicare Part D as a part of the coverage offered to its Medicare Advantage ("MA") members. Medicare Part D uses risk corridors and reinsurance coverage to provide insurance to PDPs so that they do not assume risk of excessive losses or experience significant gains. In addition, Medicare Part D includes Low-Income Cost Subsidies ("LICS") to ensure that low-income individuals receive adequate benefits. The risk corridor portion is considered a partially insured plan and the pass-through portion is an uninsured plan. Effective January 1, 2016, the Company, in mutual agreement with CMS, elected to discontinue its MA line of business due to higher than anticipated losses in 2015. - 7 -
Notes to Statutory-Basis Financial Statements Note 1 - Nature of Operations and Significant Accounting Policies (continued) In November of each year, CMS completes a reconciliation and settlement with Medicare PDPs for the prior year's risk corridor and pass-through activities. Settlement payments are received from or are made to CMS through the normal monthly capitation payment process for MA plans. For both the risk corridor and pass-through activity, the current year's revenue is adjusted for variances in the prior year's estimates. Total Part D revenue (Basic Member Premiums and Direct Subsidies) was increased by $58,246 in 2015, as a result of the prior year settlements with CMS. Settlements for the 2015 plan year have yet to be received. Per CMS, terminated plans are reconciled and settled after settlements with all active plans are completed. The Company expects to settle its Medicare receivables beginning in 2017, with final settlements received in 2018, according to CMS's schedule. Receipts for uninsured plans and the associated pharmacy claims payments are not reported in the accompanying statutory-basis financial statements as revenue or expense. The following table presents details of the uninsured portion of the Company's Medicare Part D activity and the partially insured activity. December 31, 2016 2015 Uninsured plan (reinsurance and LICS) Total insured receipts $ 319,853 $ 16,843,558 December 31 receivable $ 4,728,763 $ 4,417,515 Partially insured plan (risk corridor) Basic member premium and direct subsidy revenue $ 379,935 $ 6,081,937 December 31 receivable $ 1,090,665 $ 769,042 Impact to current year revenue from prior year settlements $ - $ 58,246 On July 1, 2008, the Company began operating an Administrative Services Organization ("ASO") contract for the State CHP+ State Managed Care Network ("SMCN") program. As the ASO, the Company pays medical and pharmacy claims (pharmacy claims are paid through a Pharmacy Benefit Manager), manages the provider network and contracts with providers for the State (the contract is between the provider and State and the ASO is not a party to the contract), provides care management services to members, and supports State reporting. In January 2011, the Company was awarded ASO contracts for three of the seven regions in the State's Regional Care Collaborative Organization ("RCCO") program. The Northeast Region commenced service in May 2011, and the other two regions commenced service in July 2011 (Denver and East Metro Regions). The Company is paid a fee per member per month for providing administrative services that include care management, community development, and member services. The RCCOs serve a portion of the Medicaid population not currently enrolled in a Medicaid managed care product. - 8 -
Notes to Statutory-Basis Financial Statements Note 1 - Nature of Operations and Significant Accounting Policies (continued) On July 1, 2009, the Company entered into an ASO contract with Behavioral Health, Inc. ("BHI"). Under this contract, the Company provides claims payments and reporting and supports utilization and quality management for BHI, which is responsible for providing Medicaid mental health services to three Colorado counties in the east Denver metro area. The Company is paid a defined percentage of the total premium revenue received by BHI from the State. In 2013, the State of Colorado Health Care Policy and Financing ("HCPF") awarded the Company a contract to serve as a Single Entry Point ("SEP") for one of the State's 24 SEP regions (five counties in the Denver metro area). SEPs provide administrative services to the State of Colorado that are primarily focused on determining if current Medicaid-eligible individuals are also eligible for Medicaid long-term care services. The SEP identifies the appropriate long-term care program for eligible individuals and, in some cases, assumes and delivers Home and Community Based ("HCBS") Case Management services to those individuals for as long as they are enrolled in Medicaid and determined eligible for the particular ongoing HCBS Case Management coverage. This is an ASO function and does not involve any insurance risk. The contract commenced July 1, 2013. In September of 2015, the Company entered into a Medicaid payment reform initiative agreement with Kaiser Permanente Medical Plan ("KP"). This initiative, funded by HCPF, provides a sub-capitation payment to KP for a limited primary care service model to a defined subset of the RCCO population. Colorado Access retains a small portion of the total payment for defined administrative activities. Although the medical risk is transferred to KP through the sub-capitation, the Company ultimately holds the risk and records the revenues received from HCPF as premium revenue. This initiative began operations in July 2016. Subsidiaries On March 28, 2013, the Company incorporated a for-profit company, New Health Ventures, Inc. ("NHV") (National Association of Insurance Commissioners' ("NAIC") Company Code 15106). NHV commenced operations on October 1, 2013 and was primarily established to offer insurance in the Colorado Healthcare Exchange (Connect for Health Colorado). On May 12, 2014, NHV issued 750,000 shares of Founders stock to the Company with a par value of $0.001 per share. The Company is the sole shareholder. Due to recurring annual losses and market instability and through mutual agreement with the DOI, NHV withdrew from the Connect for Health Colorado health insurance marketplace effective January 1, 2016. NHV members continued to be covered through December 31, 2015. NHV retained its Certificate of Authority with Colorado's Division of Insurance as it may elect to reenter the marketplace in the future. In 2015, the Company recognized an other-than-temporary impairment ("OTTI") on its investment in NHV of $8,093,895, as it was determined that NHV's inception to date unrealized losses could not be recovered. The OTTI is reported in the Company's Statutory-Basis Statements of Operations and the decrease in unrealized losses is reflected in the Statutory-Basis Statements of Changes in Capital and Surplus. The Company's admitted carrying value of its investment in NHV as of December 31, 2016 and 2015 is $0. NHV files separate financial reports with the DOI and the NAIC. - 9 -
Notes to Statutory-Basis Financial Statements Note 1 - Nature of Operations and Significant Accounting Policies (continued) Subsidiaries (continued) The Company incorporated another for-profit company during 2013, Access Diversified Services, Inc. ("ADS"). Under ADS, Access Management Services, LLC ("AMS") was also created as part of the new organizational structure. AMS commenced operations on July 1, 2013. AMS provides all of the administrative services for the Company and NHV and charges each entity on a monthly basis for reimbursement of associated expenditures, plus a 1% management fee. On July 2, 2014, ADS issued 750,000 shares of Founders stock to the Company with a par value of $0.001 per share. The Company is the sole shareholder. The Company's admitted carrying value of its investment in ADS as of December 31, 2016 and 2015 was ($4,778,578) and ($5,924,093), respectively. In 2013, Access TeleHealth Holdings, LLC ("ATH") was formed as a subsidiary of ADS. ATH is a holding company with two subsidiary limited liability companies; AccessCare Technology, LLC ("ACT") and AccessCare Services, LLC ("ACS"). ATH, ACT, and ACS began operations on January 1, 2014. ACT provided real-time, video-based treatment of health needs in a high definition environment. Due to the quickly evolving nature of the technology and the associated costs, management ceased development of and marketing of the software to external customers in 2016. ACS provides innovative clinical delivery models and services that facilitate real-time access to care, as well as coordination of care among providers, patients, and systems. Liquidity and Management Plans For the years ended December 31, 2016 and 2015, the Company recorded a net gain of $7,872,047 and a net loss of ($21,541,269), respectively, and for 2016, the Company generated positive cash flow from operations of $21,617,205, while incurring negative cash flow from operations of ($29,412,397) in 2015. Several factors contributed to the negative 2015 results, including much higher than anticipated losses in the Access Advantage Medicare line of business, unexpected losses in the ABC-D line of business, as well as continued operating losses in the Company's two wholly owned subsidiaries. Management has taken a number of important steps to remedy these issues. In mutual agreement with CMS, the Company exited the Access Advantage Medicare line of business in 2016 and, through mutual agreement with the DOI, discontinued business in NHV effective January 1, 2016. The Company worked with the State to address rates for the BHO-Denver line of business and also worked with certain providers to manage healthcare expenses more effectively. The Company went through an approximate 20% reduction in workforce in September 2015, as well as a decrease in spending in its non-employee related operating expenses. Finally, the Company increased its capital and surplus in 2016 through the issuance of an additional surplus note of $2,000,000 (Note 6). There can be no representation that the Company will or will not continue to achieve or sustain profitability or positive cash flow from operations or be in compliance with required levels of capital and surplus. The Company requested and received permission to begin repayment in 2017 of interest and principal on the $2,000,000 surplus note. Management intends to extend the maturity date of all other surplus notes and make interest payments only in 2017. - 10 -
Notes to Statutory-Basis Financial Statements Note 1 - Nature of Operations and Significant Accounting Policies (continued) Basis of Presentation The DOI recognizes only statutory accounting practices prescribed or permitted by the State for determining and reporting the financial condition and results of operations of an insurance company and determining its solvency under C.R.S. 10-3-208. The NAIC's Accounting Practices and Procedures Manual has been adopted as a component of prescribed or permitted practices by the State. The accompanying statutory-basis financial statements of the Company have been prepared in conformity with NAIC accounting practices and procedures ("NAIC APP") except to the extent that state law differs from NAIC APP. Health insurance companies in the state of Colorado are subject to certain risk-based capital ("RBC") requirements as specified by the NAIC. Under those requirements, the amount of capital and surplus that is required to be maintained by a health insurance company is to be determined based on the various risk factors related specifically to the individual company (Note 6). In May 2007, C.R.S. 10-16-411(1.5) was enacted into Colorado law, and that statute exempts Colorado health maintenance organizations who solely do business in Medicare, Medicaid, and CHP+ from the traditional RBC measurement. The Company meets the exemption definition. A unique insolvency claims reserves measurement is established in the statute for companies that meet the statute's exemption definition. The accompanying statutory-basis financial statements of the Company have been prepared in conformity with accounting practices prescribed or permitted by the DOI, which practices differ from U.S. generally accepted accounting principles ("GAAP"). The more significant variances from GAAP are as follows: Cash and short-term investments: For statutory reporting, cash and short-term investments represent cash balances and investments with initial maturities of one year or less. Under GAAP, the corresponding caption of cash and cash equivalents includes cash balances and highly liquid investments with initial maturities of three months or less. Investments in subsidiaries or controlled or affiliated entities: These investments are accounted for using the statutory equity method (for insurance related subsidiaries) and GAAP equity adjusted to a limited statutory basis (for non-insurance related subsidiaries engaged in providing insurance services on behalf of the Company) in which undistributed earnings are reported as unrealized gains and losses; under GAAP, the accounting treatment would vary depending upon the level of control. Non-admitted assets: Certain assets designated as non-admitted assets are excluded from the accompanying statutory-basis balance sheets and are charged directly to unassigned surplus. Principally, this includes receivables more than 90 days past due from non-governmental sources, amounts due from providers that are not directly matched by pending claims payments, certain deposits, prepaid expenses, surplus notes under SSAP 97 and 41 and other assets not specifically identified as admitted assets within the Accounting Practices and Procedures Manual. Under GAAP, such assets are included in the balance sheets. - 11 -
Notes to Statutory-Basis Financial Statements Note 1 - Nature of Operations and Significant Accounting Policies (continued) Basis of Presentation (continued) Insolvency reserve: In May 2007, C.R.S. 10-16-411(1.5) was enacted into Colorado law and, among other things, prescribes that certain Colorado health maintenance organizations, as defined in the statute, record an insolvency claims reserve calculated based upon the greater of one month's federal and state reimbursements (reimbursements calculated on a 12-month rolling average) for services provided to health care recipients, or the health maintenance organization's outstanding claims liability. The insolvency claims reserve is not considered a liability under GAAP. Surplus notes: Surplus notes are reported as capital and surplus under statutory reporting. Additionally, interest is not accrued on the surplus notes for statutory purposes until the DOI approves of the Company's plan to repay the notes to the issuing entities. There were no principal payments in 2016 and 2015. Interest of $150,555 and $62,403, was paid to issuers of existing notes in 2016 and 2015, respectively. New surplus notes were issued in 2016 and 2015, totaling $2,000,000 and $2,583,000, respectively. Under GAAP, the notes would be reported as a liability with the accrued interest included. A reconciliation of net income (loss) and capital and surplus of the Company as determined in accordance with statutory accounting practices to amounts determined in accordance with GAAP is as follows: Net Income (Loss) Capital and Surplus For the Years Ended December 31, For the Years Ended December 31, 2016 2015 2016 2015 (Restated) (Restated) Statutory-basis amounts $ 7,872,047 $ (21,541,269) $ 10,937,231 $ 300,455 Surplus notes - - (5,833,000) (3,833,000) Interest and accrued interest expense - - (670,100) (670,100) Insolvency reserve 3,778,650 3,603,999 10,540,022 6,761,371 Non-admitted assets - - 1,595,846 1,213,292 Equity in earnings (losses) of subsidiaries (697,157) 2,641,665 497,466 2,338,379 GAAP-basis amounts $ 10,953,540 $ (15,295,605) $ 17,067,465 $ 6,110,397 Use of Estimates The preparation of statutory-basis financial statements in conformity with the NAIC APP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the statutory-basis financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. - 12 -
Notes to Statutory-Basis Financial Statements Note 1 - Nature of Operations and Significant Accounting Policies (continued) Financial Instruments The Company's financial instruments are cash and a short-term investment that represents a statutory deposit with the State. Cash is reported at carrying value. Short-term investments are principally stated at amortized cost. The Company believes the carrying amounts of these assets in the statutory-basis financial statements approximate fair value because of the relatively short period of time between origination of the instruments and their expected realization. Health Care Receivables A summary of health care receivables is as follows: December 31, 2016 2015 Pharmaceutical rebates $ 1,078,974 $ 2,867,461 Medicare premium risk adjustments and other retroactive premium payments 8,618,158 7,712,590 Risk-sharing receivable - 4,960,998 Receivable from mental health centers ("MHCs") 7,127,254 9,130,940 Provider recoupments - 671,068 $ 16,824,386 $ 25,343,057 Pharmaceutical rebates: Amounts reported in the receivable for pharmaceutical rebates are estimated based on historical collection experience. Rebate amounts are paid by the Company's pharmaceutical benefits manager, Navitus, on a quarterly basis approximately 90 days after the end of each quarter. In 2016 and 2015, the Company collected $3,402,862 and $2,234,856, respectively, in pharmaceutical rebates. Medicare premium risk adjustments and other retroactive premium payments: The Company has reported receivables from CMS primarily for retroactive premiums for individuals enrolled in the Company's MA product lines at December 31, 2015. This receivable is primarily based on projected changes in individual member's risk score-based premiums that will generate retroactive payments in future years for past coverages. Risk-sharing receivable: This accrued receivable represents amounts to be collected from the Mental Health Center of Denver ("MHCD") for a risk-sharing agreement that covers the period from July 2014 through December 31, 2015. - 13 -
Notes to Statutory-Basis Financial Statements Note 1 - Nature of Operations and Significant Accounting Policies (continued) Health Care Receivables (continued) Receivable from mental health centers: Amount represents three types of receivables from the MHCs serving the northeast counties of the state. The Company recorded a payable to HCPF for risk corridors for two specific member categories related to the ABC-NE line of business. A receivable is recorded for these amounts that the MHCs ultimately owe. A second receivable is similar the Company recorded a reserve for claims incurred but not reported ("IBNR") related to ABC-NE. A receivable is recorded for amounts expected to be paid by the MHCs for future claims represented by the IBNR reserve. Lastly, a receivable is established for the difference in excess of claims paid by the Company to providers outside of the ABC-NE network over a specified reserve set aside from the monthly capitation payment received from the State that is intended to cover these claims. All three receivables are recorded in accordance with the Company's contract with the MHCs. Provider recoupments: The Company carries a receivable for provider overpayments that happen for a wide variety of reasons. This is part of the normal course of business. Collections of the receivable, under most circumstances, are made by offsetting future claims payments to the specific providers. These amounts are generally immaterial, and the Company normally treats these as non-admitted assets. However, as of December 31, 2015, and in accordance with SSAP No. 84, Certain Health Care Receivables and Receivables Under Government Insured Plans, the Company admitted the portion of specific receivables reported above that could be matched against claims payable for these respective providers. Premium Receivable from the State of Colorado A summary of premiums receivable from the State is as follows: December 31, 2016 2015 CHP+ retroactive premiums $ 273,631 $ 371,626 Access Behavioral Care Northeast retroactive premiums 291,253 335,770 Access Behavioral Care Denver retroactive premiums 411,407 312,595 Access Behavioral Care BHO risk corridor premiums - 2,000,000 $ 976,291 $ 3,019,991 The Company reports premiums receivable due, which include premiums due from HCPF for the CHP+ program, ABC-D and ABC-NE lines of business. HCPF pays for three months of retroactive membership. - 14 -
Notes to Statutory-Basis Financial Statements Note 1 - Nature of Operations and Significant Accounting Policies (continued) Medical Claims Payable and Insolvency Reserve The DOI requires the Company to submit an actuarial certification of medical claims payable reported as of the balance sheet date. Costs of health care services are accrued in the period services are provided to covered members, including an estimate for costs IBNR. Costs of health care services include payments to primary care physicians, specialists, hospitals, pharmacies, and other health care providers under fee-for-service arrangements, net of reinsurance recoveries. Costs IBNR are estimated based on historical claims data, current membership statistics, knowledge of catastrophic cases, requests for prior authorizations of services, tracking of individual high-utilizing members, and other information. Those estimates are subject to the effects of trends in claim severity and frequency. Although considerable variability is inherent in such estimates, management believes that the reserves for unpaid claims are adequate. These estimates are continually reviewed and adjusted as necessary as experience develops or new information becomes known; such adjustments are included in current operations. In May 2007, C.R.S. 10-16-411(1.5) was enacted into Colorado law, and that statute requires Colorado health maintenance organizations who solely do business in Medicare, Medicaid, and CHP+ to record a unique insolvency claims reserve. As of December 31, 2016 and 2015, an insolvency claims reserve of $10,540,022 and $6,761,371, respectively, was recorded. Premium Deficiency Reserve The Company assesses the profitability of its risk contracts for providing health care services to its members to determine if the current operating results or forecasts indicate the probability of direct operational future losses. The Company compares anticipated premiums to health care-related costs, including estimated payments to providers, costs of collecting premiums and processing claims, and the direct administrative costs associated with the delivery of health care services. If the anticipated future direct costs exceed the premiums, a premium deficiency reserve is recognized. No premium deficiency reserve was recorded for 2016 or 2015. Accrued Medical Incentive Pool The accrued medical incentive pool liability represents the expected payments under a risk-sharing agreement with the MHCD in the Medicaid Behavioral Health program, and expected payments to medical providers for the CHP+ State Medical Home incentive program that promotes visits to primary care physicians and wellness checks by paying the providers an incentive above the standard reimbursement for those services. Amounts payable to MHCD are based on the overall financial performance of the Medicaid Behavioral Health program and are based on MHCD meeting defined service level targets. The Company and MHCD share the risk equally for the services provided outside of MHCD in excess or less than the premium revenue available for those services. The amount payable to MHCD for the risk-sharing element of the contract at December 31, 2016, is $3,236,186. There was no amount payable to MHCD for the risk-sharing element of the contract at December 31, 2015. The amount receivable from MHCD for the risk-sharing element of the contract at December 31, 2015 was reported as a risk-sharing receivable. - 15 -
Notes to Statutory-Basis Financial Statements Note 1 - Nature of Operations and Significant Accounting Policies (continued) Accrued Medical Incentive Pool (continued) The amounts payable under the CHP+ Medical Home incentive program are based on actual evaluation and management services provided to certain age-defined CHP+ members. Amounts are paid quarterly and are determined based on amounts received by the Company from the State. At December 31, 2016 and 2015, the amounts owed to providers are $39,726 and $39,916, respectively. Amounts Held for Under-Uninsured Plans In the Company's ASO contract with the State for the CHP+ SMCN program, the State advances money to the Company on a monthly basis to cover the expected cost of claims to be paid in that month. A reconciliation process takes place a minimum of six months after the month of advance to identify the difference between the amount advanced and the amount paid in claims. As of December 31, 2016, the Company has received advances in excess of claims in the amount of $4,442,656. This amount is being held by the Company until the State completes the reconciliations and issues a recoupment demand. This balance is for the activity period between January 2015 and December 2016. At December 31, 2015, the amount of advances received in excess of claims paid was $3,301,735, which was for the activity period between January 2015 and December 2015. These amounts are included in payables to the State of Colorado in the accompanying statutory-basis balance sheets. Revenue Recognition Premiums are reported as revenue in the month in which the covered members are entitled to health care services. Revenue is recorded for any premiums that will be received or remitted by the State or federal governments to the Company in future periods that apply to the current and/or prior periods if the amount is known or can be reasonably estimated. If premiums are received in advance of the coverage month, that premium amount is recorded as a liability. No advance premium liability balance existed at December 31, 2016 and 2015. In 2016, the Company's RCCO line of business entered into a partnership with HCPF to facilitate the State Innovation Model ("SIM"). SIM is a grant from CMS to HCPF intended to help the State move to the provision of integrated physical and behavioral health care services. HCPF provided funding directly to RCCO, which in turn pays providers who are participating in the SIM, as determined by HCPF. The Company records the funding it received initially as deferred revenue. As payments are made to the providers, administrative expense is recorded, and a corresponding amount of revenue is recorded as ASO revenue, reflecting the pass-through nature of the funds. For statutory reporting, ASO revenue is netted against administrative revenue in the accompanying statutory-basis statements of operations. Third-party administration management fees, reflected in administrative expenses on the statutory-basis statements of operations, are recognized as earned and are based on a contracted per member per month rate applied to enrollment and adjusted for retroactivity. - 16 -
Notes to Statutory-Basis Financial Statements Note 1 - Nature of Operations and Significant Accounting Policies (continued) Concentrations of Credit Risk Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash equivalents, restricted short-term investments, equity investments, and receivables. All of the investments in securities are managed within guidelines established by the DOI, which limits the amounts to be invested in each type of security and with any one issuer. If any investment amounts exceed those limitations, those amounts are considered to be non-admitted assets and are not included on the accompanying statutory-basis balance sheets. Credit risk with respect to premium revenue and related receivables is mitigated due to the Company receiving substantially all of its revenue from the State or federal government during the years ended December 31, 2016 and 2015. Credit risk related to reinsurance recoveries is mitigated by the Company's selection of a reinsurer with high credit ratings and the ongoing relationship between the Company and the reinsurance carrier. Accordingly, the Company does not believe any significant concentrations of credit risk exist at December 31, 2016 and 2015. Federal Income Taxes The Company is a not-for-profit corporation exempt from payment of federal and state income taxes as a 501(c)(4) organization under Section 501(a) of the Internal Revenue Code. Accordingly, no provision for income taxes is included in the accompanying statutory-basis financial statements. Discontinued Operations The Company, in mutual agreement with CMS, elected to discontinue its Access Advantage Medicare line of business as of January 1, 2016. The Company covered members through December 31, 2015, but did not offer Medicare coverage in 2016. No significant proceeds are expected from the sale of assets, since there were minimal assets associated with this line of business and those assets will be absorbed into other operations of the Company. The Company believes its loss reserves are adequate to cover claim run off in future years and accordingly, no loss has been recorded specifically for the discontinuation of this line of business at December 31 2015. The Company's wholly owned subsidiary, NHV, by mutual agreement with the DOI, withdrew from the Connect for Health Colorado commercial marketplace and did not offer health plans in 2016. Members were covered through December 31, 2015. NHV intends to retain its Certificate of Authority with Colorado's Department of Insurance and may elect to reenter the marketplace in the future. The Company has committed to fund the operating losses of NHV and maintain NHV's capital and surplus at statutory minimum requirements. - 17 -
Notes to Statutory-Basis Financial Statements Note 1 - Nature of Operations and Significant Accounting Policies (continued) Discontinued Operations (continued) The amounts related to the Access Advantage Medicare discontinued line of business in the Company's statutory-basis balance sheet and statements of revenue and expenses at December 31, 2016 and 2015, are as follows: Assets December 31, 2016 2015 Health care receivables $ 8,618,158 $ 9,580,436 Total assets $ 8,618,158 $ 9,580,436 Liabilities, Capital, and Surplus Medical claims payable $ 100,001 $ 9,312,285 Loss adjustment expense reserve - 4,956 Total liabilities $ 100,001 $ 9,317,241 Statement of Revenue and Expenses Premiums and other revenue $ 665,765 $ 47,587,239 Health benefits paid or provided 1,308,039 (48,987,535) General expenses (1,925,149) (4,354,756) Claims adjustment expense - (991,682) Net income/(loss) $ 48,655 $ (6,746,734) Note 2 - Restatement The Company has restated its December 31, 2015 statutory-basis financial statements to correct the accounting for its investment in its subsidiary, ADS, in accordance with SSAP No. 97. The statutory-basis balance sheet as of December 31, 2015 has been restated as follows: December 31, 2015 Effect (As Originally Reported) December 31, 2015 (Restated) Equity interests $ 555,680 $ (6,479,773) $ (5,924,093) Total admitted assets $ 50,807,108 $ (6,479,773) $ 44,327,335 Total capital and surplus - January 1, 2015 $ 19,287,657 $ (4,718,028) $ 14,569,629 Changes in unrealized losses on equity interests $ 2,415,541 $ (1,761,745) $ 653,796 Total capital and surplus - December 31, 2015 $ 6,780,228 $ (6,479,773) $ 300,455-18 -
Notes to Statutory-Basis Financial Statements Note 3 - Net Investment Income Investment income in the accompanying statutory-basis statements of operations includes the following: December 31, 2016 2015 Interest income $ 65,707 $ 30,863 Realized gain on investments - 243,858 Investment income 65,707 274,721 Interest paid on surplus notes (150,555) (62,403) Other investment expenses (20,080) (22,729) Investment expense (170,635) (85,132) Net investment (loss) income $ (104,928) $ 189,589 Note 4 - Reinsurance Certain premiums and benefits are ceded to another insurance company under a reinsurance agreement. The ceded reinsurance agreement allows the Company to maintain its exposure to losses within its capital resources. For 2016, the Company has a reinsurance agreement to provide for 80% coverage of eligible hospital expenses in excess of $250,000 per year (Company retention) for CHP+ up to an aggregate limit of $2,000,000 per member per plan year. For 2015, the Company's reinsurance agreement provided for 80% coverage of eligible hospital expenses in excess of $250,000 per year (Company retention) for CHP+ and $275,000 per year for Medicare for each member up to an aggregate limit of $2,000,000 per member per plan year. The Company remains obligated for amounts ceded in the event that the reinsurers do not meet their obligations. Reinsurance premiums expensed were $167,238 and $551,897 for 2016 and 2015, respectively, and are netted against premium revenue in the accompanying statutory-basis statements of operations. There were no reinsurance receivables at December 31, 2016 and 2015 due to claims activity. However, due to favorable claims experience in 2015, there is an $118,864 reinsurance experience refund receivable at December 31, 2016, $115,378 which is due the Company and $3,486 that is owed to NHV. Reinsurance recoveries are reported in the year of determination regardless of the actual date of service that was the basis for the original claim. Recoveries recorded as a reduction to health benefits paid or provided for the years ended December 31, 2016 and 2015 were $158,746 and $0, respectively. - 19 -
Notes to Statutory-Basis Financial Statements Note 5 - Medical Claims Payable and Loss Adjustment Expense Reserves The following table presents the activity of the Company's medical claims payable and loss adjustment expense reserves, net of reinsurance: For the Years Ended December 31, 2016 2015 Medical claims payable and loss adjustment expense reserves as of January 1 $ 24,463,310 $ 20,045,258 Health care claim expense incurred during the year Related to current year 216,149,235 246,304,385 Related to prior years (1,274,931) (2,237,058) Total health care claim expense incurred during the year 214,874,304 244,067,327 Health care claims paid during the year Related to current year (203,612,710) (230,621,008) Related to prior years (15,251,080) (12,632,266) Total health care claims paid during the year (218,863,790) (243,253,274) Change in insolvency reserves 3,778,651 3,603,999 Medical claims payable and loss adjustment expense reserves at December 31 $ 24,252,475 $ 24,463,310 Negative amounts reported for claims incurred related to prior years result from claims being settled for amounts less than originally estimated, principally due to more favorable actual medical cost experience than that assumed at the time the liability was established. Note 6 - Regulatory Reporting and Requirements Risk-Based Capital and Surplus Notes Health insurance companies in the state of Colorado are subject to certain RBC requirements as specified by the NAIC. Under those requirements, the amount of capital and surplus that is required to be maintained by a health insurance company is to be determined based on the various risk factors related specifically to the individual company. In May 2007, C.R.S. 10-16-411(1.5) was enacted into Colorado law, and that statute exempts Colorado health maintenance organizations who solely do business in Medicare, Medicaid, and CHP+ from the traditional RBC measurement. The Company meets the exemption definition. A unique insolvency claims reserves measurement is established in the statute for companies that meet the statute's exemption definition (Note 1). At December 31, 2016 and 2015, the Company's capital and surplus was $10,937,231 and $300,455, respectively, which is approximately 273% and 7.5%, respectively, of the minimum capital and surplus of $4,000,000 required by C.R.S. 10-16-411(1.5). Capital and surplus at December 31, 2015 was restated to reflect the proper application of SSAP No. 97, Investments in Subsidiary, Controlled and Affiliated Entities. See Note 2. - 20 -
Notes to Statutory-Basis Financial Statements Note 6 - Regulatory Reporting and Requirements (continued) Risk-Based Capital and Surplus Notes (continued) As of December 31, 2016 and 2015, the Company has $5,833,000 and $3,833,000, respectively, of outstanding subordinated debentures (surplus notes). The following table details each surplus note. Name of Party Original Date Issued Original Interest Rate Par Value (Face Amount of Notes Carrying Value of Note Principal and/or Interest Paid YTD Total Principal and/or Interest Paid Unapproved Principal and/or Interest Date of Maturity UCH 9/14/2001 6.50% $ 625,000 $ 625,000 See below See below $ 351,493 11/30/2017 UCH 12/23/2015 3.25% 1,000,000 1,000,000 $ 66,280 $ 291,708-11/30/2017 CHC 9/14/2001 6.50% 625,000 625,000 See below See below 318,607 11/30/2017 CHC 12/21/2015 4.25% 1,000,000 1,000,000 65,179 314,280-11/30/2017 CCMCN 12/17/2015 3.25% 333,000 333,000 10,889 10,889-12/31/2017 UPI 12/22/2015 3.25% 250,000 250,000 8,207 8,207-12/31/2017 CHF 3/30/2016 3.25% 2,000,000 2,000,000 - - - 3/01/2019 Total $ 5,833,000 $ 5,833,000 $ 150,555 $ 625,084 $ 670,100 The 2001 and 2015 debentures were issued to the three Sponsor Organizations and University Physicians, Inc. These debentures carry an interest rate equal to the prime rate. The interest rate is subject to adjustment on September 1, December 1, or January 1 of each year, depending on the note. The debenture issued in 2016 was issued to The Colorado Health Foundation ("CHF"). The interest rate is fixed at 3.25%. All debentures are subordinate to policyholders, to claimant and beneficiary claims as well as all other classes of creditors other than the surplus note holders. Beginning in 2008, with the approval of the DOI, the Company began paying interest to the note holders on a monthly basis. However, the DOI's approval was rescinded when the Company's capital and surplus fell below the required minimum balance of $4,000,000 at June 30, 2009, and payments were immediately suspended. Effective June 2010, the Company was given the approval from the DOI to resume interest payments; these payments have occurred monthly since May 2010 through December 31, 2016. Any payment of principal and accrued interest on the subordinated debentures is payable only out of surplus funds of the Company and only at such time as the financial condition of the Company is such that surplus, after payment of principal and accrued interest, would exceed $5,000,000 or 125% of the minimum capital and surplus required by C.R.S. 10-16-411(1.5) and only with prior approval of the Commissioner of the DOI. Interest paid and expensed for the subordinated debentures totaled $150,555 and $62,403 for 2016 and 2015, respectively. Accumulated accrued interest totaled $670,100 at both December 31, 2016 and 2015. Such accrued interest is not recognized for statutory-basis reporting. - 21 -
Notes to Statutory-Basis Financial Statements Note 6 - Regulatory Reporting and Requirements (continued) Statutory Deposit The Company is required by C.R.S. 10-16-412(3)(VI) to maintain a minimum of $400,000 in investments, which are held in joint custody by the Commissioner of the DOI and the Company. At December 31, 2016 and 2015, the Company held investments classified as short-term investments with an original maturity of less than one year valued at $430,881 and $430,907, respectively, in satisfaction of this requirement. Dividend Restriction The Company cannot pay dividends to its Sponsor Organizations without the prior written approval of the DOI. The Company has not paid any dividends since its inception. Note 7 - Pharmaceutical Rebate and Risk-Sharing Receivables Pharmaceutical rebates are calculated by applying the percentage of the previous quarter's rebate to total pharmacy expenses for that quarter, to the current quarter's pharmacy expenses. The following table presents the Company's pharmaceutical rebate receivables. Quarter Ended Estimated Pharmacy Rebates as Reported on Financial Statements Pharmacy Rebates as Billed or Otherwise Confirmed Actual Rebates Received within 90 Days of Billing Actual Rebates Received between 91 and 180 Days of Billings Actual Rebates Received More than 180 Days After Billing December 31, 2016 $ 538,987 $ 511,509 $ - $ - $ - September 30, 2016 $ 502,615 $ 539,987 $ 104,433 $ $ - June 30, 2016 $ 391,944 $ 462,915 $ 142,697 $ 299,700 $ - March 31, 2016 $ 376,308 $ 423,548 $ 143,942 $ 260,877 $ (610) January 1, 2016 $ 915,006 $ 857,914 $ 468,161 $ 374,196 $ - September 30, 2015 $ 965,774 $ 965,774 $ 554,298 $ 345,654 $ 41636 June 30, 2015 $ 674,117 $ 1,004,428 $ 17,748 $ 878,024 $ 74,127 March 31, 2015 $ 632,789 $ 686,141 $ 131,044 $ 555,097 $ - December 31, 2014 $ 635,742 $ 583,537 $ 286,060 $ 297,477 $ - September 30, 2014 $ 571,084 $ 616,681 $ 337,796 $ 265,950 $ 313 June 30, 2014 $ 487,344 $ 546,010 $ 302,865 $ 242,587 $ - March 31, 2014 $ 546,663 $ 543,035 $ 268,425 $ 274,610 $ - - 22 -
Notes to Statutory-Basis Financial Statements Note 7 - Pharmaceutical Rebate and Risk-Sharing Receivables (continued) The Company is party to a risk sharing agreement with MHCD in its ABC-D line of business. Under the agreement, the Company and MHCD share the risk equally for the cost of services provided outside of MHCD that is in excess of or less than the premium revenue available for those services. The following table presents the Company's risk-sharing receivables. Calendar Year Evaluation Period Year Ending Risk Sharing Receivable as Estimated in the Prior Year Risk Sharing Receivable as Estimated in the Current Year Risk Sharing Receivable Billed Risk Sharing Receivable Not Yet Billed Actual Risk Sharing Amounts Received in Year Billed Actual Risk Sharing Amounts Received First Year Subsequent Actual Risk Sharing Amounts Received Second Year Subsequent Actual Risk Sharing Amounts Received- All Other 2016 2016 $4,961 $26 $4,604 $26 $4,604 2017 XXX $ - XXX XXX XXX XXX XXX XXX 2015 2015 $2,920 $4,961 $ - $4,961 $ - $ - 2016 XXX $ - XXX XXX XXX XXX XXX XXX 2014 2014 $ - $2,920 $ - $2,920 $ - 2015 XXX $ - XXX XXX XXX XXX XXX XXX Note 8 - Related Party Transactions At December 31, 2016 and 2015, the Company had management fees payable to AMS of $673,488 and $0, respectively. The Company also has a payable to NHV of $3,486, representing NHV's portion of the experience rated refund owed to the Company. At December 31, 2016 and 2015, the Company had receivables from AMS of $534 and $3,030,794, respectively. The Company recorded management fee expense of $64,141,828 and $72,912,468 to AMS in 2016 and 2015, respectively. The Sponsor Organizations receive payment for health care services provided to covered members. Approximately 12% of the total cost of health care services in both 2016 and 2015, resulted from payments to the Sponsor Organizations. The Company holds two surplus notes issued by NHV, each in the amount of $2,500,000, for a total of $5,000,000. The notes have maturity dates of December 31, 2017 and December 31, 2018 and both bear an interest rate that is tied to the Federal Reserve Bank of New York's prime rate. The interest rate for each note is subject to adjustment on May 31 and March 31, respectively, of each year. As of December 31, 2016, the rate for both notes is 3.5%. As of December 31, 2015, NHV's capital and surplus balance was below the statutory minimum requirement and, as such, the total investment in the NHV surplus notes is valued at zero in accordance with SSAP No. 41, Surplus Notes. At December 31, 2016, NHV's capital and surplus balance is above the statutory minimum, but the Company continues to value the surplus notes at zero in accordance with SSAP No. 41. - 23 -
Notes to Statutory-Basis Financial Statements Note 9 - Commitments and Contingencies Provider Insolvency Reserve Based on current information, the Company believes that there is no liability for provider insolvency risk that would materially affect its statutory-basis financial position. However, the evaluation of the likely impact of claims asserted against the Company could change in the future, and an unfavorable outcome, depending upon the amount and timing, could have a material adverse effect on the Company's statutory-basis results of operations or cash flow in a future period. Note 10 - Recoupment Demand from the State For ABC-D, amounts are reserved for State recoupments at the balance sheet date for State Fiscal Years ("SFY") 2016 and the first six months of SFY 2017. At December 31, 2015, amounts were reserved for SFYs 2012, 2014, and 2015 and the first six months of SFY 2016. The amounts reserved as of December 31, 2016 and 2015 were $12,112,835 and $7,956,903, respectively. There were two recoupments in 2016 related to the amounts accrued at December 31, 2015. In May 2016, the State recouped $2,675,233 for overpayment of certain adult members paid at incorrect rates in 2015. In August 2016, the State recouped $75,807 for overpayments related to the risk corridor for the Adults without Dependent Children ("AwDC") category for 2015. For ABC-NE, there is a similar reserve at the balance sheet date for SFY 2016 and the first six months of SFY 2017. The amounts reserved as of December 31, 2016 and 2015, were $5,649,565 and $8,125,032, respectively. There were two recoupments in 2016 related to the amounts accrued at December 31, 2015. In May 2016, the State recouped $2,146,332 for overpayment of certain adult members paid at incorrect rates in 2015. In July 2016, the State recouped $1,562,790 for overpayment of the AwDC category for 2014-2015. In total, the Company has a liability of $17,817,328 and $11,927,896 at December 31, 2016 and 2015, respectively, for all known and potential State recoupments. The increase in the liability in 2016 is primarily related to additional reserves for risk corridors for ABC-D, specifically a risk corridor for the AwDC eligibility category. - 24 -
Notes to Statutory-Basis Financial Statements Note 11 - Uninsured Plans On July 1, 2008, the Company initiated operations under a contract to be the State's ASO for the CHP+ SMCN. As the ASO, the Company pays medical and pharmacy claims, manages the provider network and contracts with providers for the State (the contract is between the provider and the State and the ASO is not a party to the contract), provides care management service, and supports State reporting. The Company is paid an administrative fee on a per member per month basis for all administrative services provided. The Company receives a monthly medical advance from HCPF, also on a per member per month basis, to cover all health care costs of the members. Differences between the medical advance and the actual health care costs are reconciled on a monthly basis; however, the reconciliation takes place six months after the month of activity. For example, the difference for December 2016 will be reconciled in June 2017. At December 31, 2016, the Company had a payable to the State for $4,442,656, representing amounts received in excess of medical claims activity for the year ended December 31, 2016. At December 31, 2015, the Company had a payable to the State for $3,301,735, representing amounts received in excess of medical claims activity for the year ended December 31, 2015. The following table reports the financial results of the SMCN ASO: - 25 - December 31, 2016 2015 Total member months 69,512 82,818 Total administrative revenue $ 1,791,958 $ 669,120 Total administrative costs (1,371,959) (2,624,638) Net margin $ 419,999 $ (1,955,518) Total claims paid $ 15,487,796 $ 12,581,213 Beginning payable balance $ (3,301,735) $ (9,958,747) Ending payable balance $ (4,442,656) $ (3,301,735) Per the terms of its ASO contract with BHI, the Company pays claims for BHI and bears no risk of loss or liability for actual services provided. Under this contract, the Company pays claims out of the insured's bank account. The following table reports the financial results of the BHI ASO: December 31, 2016 2016 Total member months 3,741,636 3,559,707 Total administrative revenue $ 4,527,685 $ 4,484,901 Total administrative costs (4,377,871) $ (3,894,137) Net margin $ 149,814 $ 590,764 Total claims paid $ 37,064,781 $ 32,793,192 Beginning receivable balance $ 433,805 $ 362,582 Ending receivable balance $ 391,334 $ 433,805
Notes to Statutory-Basis Financial Statements Note 12 - Reconciliation from Report to Annual Statement The following adjustments were made to the 2016 statutory-basis financial statements in this report as compared to the annual statement filed with the NAIC and the DOI: Line Item Audited Statutory Statement Adjustment Equity interests $ (4,778,578) $ - $ (4,778,578) Total admitted assets $ 62,874,602 $ 67,653,178 $ (4,778,578) Change in unrealized losses on equity interests $ 1,147,283 $ 145,681 $ 1,001,602 Change in non-admitted assets $ (382,554) $ (1,082,139) $ 699,585 Capital and surplus $ 10,937,231 $ 15,715,809 $ (4,778,578) The adjustment to equity interests and change in unrealized losses was made to comply with statutory prescribed practices related to the Company's investment in ADS. Note 13 - Subsequent Events The Company has evaluated all subsequent events through the auditors' report date, which is the date these statutory-basis financial statements were available to be issued. Refer to Note 1 for discussion of surplus notes. Otherwise, there were no material subsequent events that required recognition or additional disclosure in these statutory-basis financial statements. - 26 -
SUPPLEMENTARY INFORMATION
Investment Risks Interrogatories 1. The Company's total admitted assets, as reported on page two of its Annual Statement, is $67,653,178*. 2. The Company's investments include only U.S. government agency securities and those U.S. government money market funds listed in the Appendix to the SVO Practices and Procedures Manual as exempt. 3. The Company holds no bonds. 4. The Company holds no foreign investments. 5. The Company holds no Canadian investments. 6. The Company holds no investments with contractual sales restrictions. 7. The Company holds no equity interests in mutual funds. 8. The Company holds no non-affiliated, privately placed equities. 9. The Company holds no general partnership interests. 10. The Company holds no mortgage loans. 11. The Company holds no real estate investments. 12. The Company has no repurchase agreements. 13. The Company holds no warrants. 14. The Company has no exposure for collars, swaps, or forwards as of December 31, 2016. 15. The Company has no exposure for futures contracts as of December 31, 2016. 16. The Company has ($4,778,578) in investments included in the write-ins for the invested assets category included on the Summary Investment Schedule at December 31, 2016. * The audited statutory-basis financial statements differ from the annual statement as filed by $4,778,578. See Note 12 in the notes to the statutory-basis financial statements. - 28 -
Summary Investment Schedule December 31, 2016 Admitted Assets as Reported Gross Investment Holdings* in the Annual Statement Investment Categories Amount Percent Amount Percent Bonds: U.S. Treasury securities $ - - % $ - - % U.S. government agency obligations (excluding mortgage-backed securities): Issued by U.S. government agencies - - - - Issued by U.S. government-sponsored agencies - - - - Non-U.S. government (including Canada, excluding mortgage-backed securities) - - - - Securities issued by states, territories, and possessions and their political subdivisions in the U.S.: State, territories, and possessions general obligations - - - - Political subdivisions of states, territories, and possessions and political subdivisions general obligations - - - - Revenue and assessment obligations - - - - Industrial development and similar obligations - - - - Mortgage-backed securities (includes residential and commercial MBS): Pass-through securities: Issued or guaranteed by GNMA - - - - Issued or guaranteed by FNMA and FHLMC - - - - All other - - - - CMOs and REMICs: Issued or guaranteed by GNMA, FNMA, FHLMC, or VA - - - - Issued by non-u.s. government issuers and collateralized by mortgage-backed securities issued or guaranteed by agencies listed in previous line item - - - - All other - - - - Other debt and other fixed-income securities (excluding short-term): Unaffiliated domestic securities (includes credit tenant loans and hybrid securities) - - - - Unaffiliated non-u.s. securities (including Canada) - - - - Affiliated securities - - - - See note to summary investment schedule. - 29 -
Summary Investment Schedule (continued) December 31, 2016 Admitted Assets as Reported Gross Investment Holdings* in the Annual Statement Investment Categories Amount Percent Amount Percent Equity interests: Investments in mutual funds - - - - Preferred stocks: Affiliated - - - - Unaffiliated - - - - Publicly traded equity securities (excluding preferred stocks): Affiliated - - - - Unaffiliated - - - - Other equity securities: Affiliated (4,778,576) (10.9) (4,778,576) (11.1) Unaffiliated - - - - Other equity interests including tangible personal property under lease: Affiliated - - - - Unaffiliated - - - - Mortgage loans: Construction and land development - - - - Agricultural - - - - Single-family residential properties - - - - Multi-family residential properties - - - - Commercial loans - - - - Mezzanine real estate loans - - - - Real estate investments: Property occupied by the Company - - - - Property held for production of income - - - - Property held for sale - - - - Contract loans - - - - Derivatives - - - - Receivables for securities - - - - Securities lending - - - - Cash, cash equivalents, and short-term investments 47,587,636 109.0 47,587,634 111.1 Other invested assets 858,603 1.9 - - Total invested assets $ 43,667,663 100.0% $ 42,809,058 100.0% * Gross investment holdings as valued in compliance with the NAIC's Accounting Practices and Procedures Manual. See note to summary investment schedule. - 30 -
Note to Summary Investment Schedule Note 1 - Basis of Presentation The accompanying summary investment schedule presents selected statutory-basis financial data as of December 31, 2016, and for the year then ended, for purposes of complying with the National Association of Insurance Commissioners' Accounting Practices and Procedures Manual, and agree to or are included in the amounts reported in the Colorado Access 2016 Statutory Annual Statement as expected to be refiled with the Department of Regulatory Agencies of the State of Colorado following the adjustments described in Note 12 to the statutory-basis audited financial statements. - 31 -
Uniform Grant Guidance Audit Report December 31, 2016 AUDIT TAX CONSULTING
Table of Contents Independent Auditors' Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards...1 Independent Auditors' Report on Compliance for Each Major Federal Program; Report on Internal Control Over Compliance; And Report on Schedule of Expenditures of Federal Awards Required by the Uniform Guidance...3 Schedule of Findings and Questioned Costs...6 Schedule of Expenditures of Federal Awards...9 Notes to Schedule of Expenditures of Federal Awards...10 Page
INDEPENDENT AUDITORS' REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS The Board of Directors Colorado Access Aurora, Colorado We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the statutory-basis financial statements of Colorado Access (the "Company"), which are comprised of the statutory-basis balance sheet as of December 31, 2016, and the related statutory-basis statements of operations, changes in capital and surplus, and cash flows for the year then ended, and the related notes to the statutory-basis financial statements, and have issued our report thereon dated May 19, 2017. INTERNAL CONTROL OVER FINANCIAL REPORTING In planning and performing our audit of the financial statements, we considered the Company's internal control over financial reporting ("internal control") to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing an opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control. Accordingly, we do not express an opinion on the effectiveness of the Company's internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected, on a timely basis. Our consideration of internal control was for the limited purpose described in the preceding paragraph and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies; therefore, material weaknesses or significant deficiencies may exist that were not identified. However, as described in item 2016-001 in the accompanying schedule of findings and questioned costs, we identified certain deficiencies in internal control that we consider to be material weaknesses. - 1 -
The Board of Directors Colorado Access COMPLIANCE AND OTHER MATTERS As part of obtaining reasonable assurance about whether the Company's statutory-basis financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, non-compliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit; accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. MANAGEMENT'S RESPONSE TO FINDINGS The Company's response to the findings identified in our audit are described in the accompanying schedule of findings and questioned costs. The Company's response was not subjected to the auditing procedures applied in the audit of the financial statements; accordingly, we express no opinion on it. PURPOSE OF THIS REPORT The purpose of this report is intended solely to describe the scope of our testing of internal control and compliance and the results of that testing and not to provide an opinion on the effectiveness of the Company's internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity's internal control and compliance. Accordingly, this communication is not suitable for any other purpose. May 19, 2017 Denver, Colorado EKS&H LLLP - 2 -
INDEPENDENT AUDITORS' REPORT ON COMPLIANCE FOR EACH MAJOR FEDERAL PROGRAM; REPORT ON INTERNAL CONTROL OVER COMPLIANCE; AND REPORT ON SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS REQUIRED BY THE UNIFORM GUIDANCE The Board of Directors Colorado Access Aurora, Colorado REPORT ON COMPLIANCE FOR EACH MAJOR FEDERAL PROGRAM We have audited Colorado Access's (the "Company") compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on each of the Company's major federal programs for the year ended December 31, 2016. The Company's major federal programs are identified in the summary of auditors' results section of the accompanying schedule of findings and questioned costs. Management's Responsibility Management is responsible for compliance with federal statutes, regulations, and the terms and conditions of its federal awards applicable to its federal programs. Auditors' Responsibility Our responsibility is to express an opinion on compliance for each of the Company's major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States; and the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards ("Uniform Guidance"). Those standards and the Uniform Guidance require that we plan and perform the audit to obtain reasonable assurance about whether non-compliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the Company's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide a legal determination of the Company's compliance. - 3 -
The Board of Directors Colorado Access Opinion on Each Major Federal Award In our opinion, the Company complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended December 31, 2016. REPORT ON INTERNAL CONTROL OVER COMPLIANCE Management of the Company is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered the Company's internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with the Uniform Guidance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the Company's internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, non-compliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance such that there is a reasonable possibility that material non-compliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies; therefore, material weaknesses or significant deficiencies may exist that were not identified. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses or significant deficiencies. Purpose of this Report The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose. - 4 -
The Board of Directors Colorado Access REPORT ON SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS REQUIRED BY UNIFORM GUIDANCE We have audited the statutory-basis financial statements of the Company as of and for the year ended December 31, 2016, and have issued our report thereon dated May 19, 2017, which contained an unmodified opinion on those statutory-basis financial statements. Our audit was conducted for the purpose of forming an opinion on the statutory-basis financial statements as a whole. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by Uniform Guidance and is not a required part of the statutory-basis financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the statutory-basis financial statements. The information has been subjected to auditing procedures applied in the audit of the statutory-basis financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the statutory-basis financial statements or to the statutory-basis financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the schedule of expenditures of federal awards is fairly stated, in all material respects, in relation to the statutory-basis financial statements as a whole. May 19, 2017 Denver, Colorado EKS&H LLLP - 5 -