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Friday Health Plans collapse caused by rapid growth, unsustainable pricing

Friday Health Plans Inc. is the latest insurtech to fall to unsustainable pricing and rapid growth.

The Colorado-based insurtech announced on June 2 that it would be winding down its business, citing an inability to scale its financial infrastructure "to match the pace of our growth and secure the additional capital required to run our business."

This statement was further backed up by press releases from various state insurance regulators.

"The aggressive growth strategies of Friday Health Plans in other states outpaced the company's ability to find financing," the Colorado Division of Insurance statement said. "This led to regulatory actions throughout the country, including Colorado, to closely monitor whether the company would be able to continue operating."

Bigger in Texas

The insurer's collapse will impact more than 355,000 customers across seven states, with the vast majority located in Texas, where the insurer had massive premium growth in 2022.

Friday Health Plans had a total enrollment of 304,360 in Texas in 2022, a dramatic increase from 60,080 the year prior, according to an S&P Global Market Intelligence analysis. While the insurer also saw growth in several other states from 2021 to 2022, nothing came close to Texas. Friday Health then announced in November 2022 it would scale operations and stop offering insurance in Texas and New Mexico, the latter of which had 3,975 enrollments in 2022.

Friday Health Plans' entire focus was growth, said Kaenan Hertz, managing partner at Insurtech Advisors.

"They no doubt felt that venture would continue to fund the growth, irrespective of financial results. That world changed," Hertz said. "It is probable that they were among the lower cost providers in the [Affordable Care Act] exchanges, which further complicated their financial situation."

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ACA market enters positive inflection cycle

Friday Health Plans is the latest health insurer to deal with the consequences of the Affordable Care Act market exhibiting classic insurance underwriting cycle dynamics, wrote Stephens analysts Scott Fidel and Raj Kumar in a research note following the announcement of Friday's demise.

"From 2020-2022, the market experienced the negative phase of its underwriting cycle, driven by temporarily well-capitalized new market entrants pricing irrationally to gain market share," the analysts wrote. "The two companies that best represented this unsustainable approach to pricing were Bright Health and Friday Health Plans."

After a difficult 2022 in which Bright Health exited its Medicare Advantage business outside of California and ceased offering individual and family plans, the embattled insurtech is now exploring the sale of its Golden State business.

Traditional economic forces took effect and capital proved to be finite, the analysts wrote, pointing to Bright Health's exit from the ACA market earlier this year and regulators' efforts to wind down Friday's ACA operations.

"Just one year ago, Friday had announced a $120 million capital raise after its [ACA exchange] enrollment swelled to ~330K lives across [seven] states," the analysts wrote.

The closure of Friday Health Plans is also a setback for the Affordable Care Act, according to Hertz.

"The ACA has been criticized for its high costs, and the closure of Friday Health Plans is likely to further increase the cost of health insurance for many people, and this is perhaps the saddest impact — a human one," Hertz said. "Hundreds of thousands of people will need to find new insurance, most likely at higher costs."

State insurance regulators step in

The insurer's hand was forced by several states, including Georgia, which announced on May 31 that it placed Friday Health into receivership and told policyholders to find a new insurance plan by August.

Georgia's announcement was followed the next day by Nevada placing the insurer into receivership. Previously, Texas regulators ordered one of its units, Friday Health Insurance Co. Inc., into liquidation in March.

"While we are deeply disappointed, we agree with the decision of our state regulators that it is necessary to wind down Friday's business operations over time in accordance with the regulations in the states where we are operating," the insurer said in a June 2 statement.

Additionally, insurance regulators in Colorado, New Mexico, North Carolina, Oklahoma and Texas barred Friday Health Plans from taking on additional members.

Not all states have followed Georgia's lead and set a date by which Friday Health policyholders must find new coverage.

The Colorado Division of Insurance told consumers who are already enrolled in a Friday plan for 2023 that they will continue with their current plan for the year, but new consumers will not be able to enroll.

"Based on the latest financial information the Colorado Division of Insurance has, the Colorado-licensed company … has the capital to continue for 2023, meaning that members' benefits will continue and the company will continue to pay health care claims," the agency said in an FAQ document.