Evergreen Health is living up to its name. Uncertainty in the Managed Care sector has weighed heavily on investors in 2017, with just six deals announced in the first four months. The blocked mega-mergers, coupled with the uncertain replacement of the Affordable Care Act (ACA), has created an unfriendly environment for deal making. And now, the latest deal in this sector may signal the demise of the health care co-ops established under the ACA.
On May 2, not-for-profit Evergreen Health announced that it was being acquired by a group of investors in Maryland, which included JARS Health Investments, Anne Arundel Health System and LifeBridge Health, for an undisclosed price. The deal was the Evergreen’s last attempt at staying afloat in the health insurance market place after a long history of grave financial pressures.
Evergreen Health, based in Baltimore Maryland, was one of 24 insurance co-ops formed under a provision of the ACA intended to create more competition in the marketplace. Soon after their inception, several factors pushed these firms out of business.
Co-ops struggled to compete with existing competition long enough to reach a point of financial stability. Adding insult to injury, a provision in the ACA, dubbed “risk adjustment payments,” required these newly formed carriers to pay vast sums to longstanding, larger carriers, like CareFirst, in an attempt to subsidize carriers that take on sicker patients.
Evergreen was one of just six remaining co-ops in the United States, by October 2016. The company struggled to turn a profit, making it impossible to pay back a $65 million federal start-up loan awarded by the Maryland Insurance Administration via the ACA. All the while, Evergreen was fighting CMS regarding a potential $24 million risk-adjustment payment.
That month, Evergreen put itself up for sale, with the goal of converting to a for-profit company. CMS put a temporary hold on new enrollments, causing 9,000 people already insured with the carrier to find new plans.
In May 2017, the investors taking over the troubled firm were revealed. Under an agreement with CMS, Evergreen will repay $3.2 million of a $65 million federal startup loan and forfeit $30 million it was due from another federal program. In exchange, Evergreen will no longer be a co-op or under the oversight of CMS. The stock purchase agreement is pending Evergreen’s final transition to a for-profit company, which the Maryland Insurance Administration is expected to consider in June.
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