A.M. Best Upgrades Issuer Credit Rating of PacificSource Health Plans
June 01, 2017 04:25 PM Eastern Daylight Time
OLDWICK, N.J.—( BUSINESS WIRE)—A.M. Best has upgraded the Long-Term Issuer Credit Rating to “bbb+” from “bbb” and affirmed the Financial Strength Rating of B++ (Good) of PacificSource Health Plans (PHP) (Springfield, OR). The outlook of the Credit Rating (rating) is stable.
The rating upgrade reflects PHP’s strategic role within an integrated health care delivery system as part of PacificSource and Legacy Health. In 2016, Legacy Health, a health system in Oregon, acquired a 50% interest in PacificSource, with the other 50% owned by Pacific Health Associates. The partnership with Legacy Health has enhanced PacificSource’s capital position due to the contribution of funds in 2016 with additional funding expected over the next five years. The partnership creates an opportunity for the PHP organization’s innovation and strategic growth efforts. A.M. Best expects PHP to play an integral role as a managed care entity for the newly formed partnership between PacificSource and Legacy Health. The integration of the health system and the health plan functions in Legacy Health’s markets are expected to drive closer relationships with providers in key geographies. Furthermore, PHP has shown an improvement in its risk-adjusted capital level due to the capital contribution from its parent organization in 2016. Reductions in membership associated with non-performing lines of business also have improved the company’s overall risk-adjusted capital position over the past few years.
These positive rating factors are offset partially by PHP’s elevated operating losses in 2016, which were driven largely by a sizable loss within the individual market. The company’s losses were attributed to the continued challenges and higher cost members in the individual exchange market segment of the Patient Protection and Affordable Care Act (ACA). Management has implemented significant rate increases and the narrow network insurance products in select states for 2017, which A.M. Best expects to improve PHP’s operating performance.
A.M. Best deviated from its “Rating Members of Insurance Groups” criteria report by providing PHP with rating enhancement from Legacy Health. As prescribed by the criteria, to be eligible for rating enhancement, an individual company must operate under common ownership (greater than 50%), with the entity providing lift or maintaining board control together with common management. In this case, PHP’s intermediate parent company, PacificSource, is not majority owned by one entity, but rather is equally owned by two entities, Pacific Health Associates and Legacy Health. The agreement with Legacy Health provides capital infusions to PacificSource over a five-year period.
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