An acquisition and a 3-year-old decision to focus on its group health insurance business have started paying off for Physicians Health Plan of Northern Indiana.

The Fort Wayne-based, nonprofit health insurance company recently received a ratings upgrade from the AM Best insurance rating company referencing results of that decision as well as enrollment gains.

Best upgraded PHP’s financial strength rating to B++ from B+. Both ratings are good but B++ is better than B+, Best said in a statement.

PHP’s long-term issuer credit rating, which uses lower-case letters to measure future credit risk, rose to bbb from bbb-. The outlook for the financial strength and long-term issuer credit ratings was stable.

“The ratings reflect PHP’s balance sheet strength, which AM Best categorizes as strong, as well as its marginal operating performance, limited business profile and appropriate enterprise risk management,” Best said in a statement.

Retained earnings and reduced business risk helped PHP increase its risk-adjusted capitalization materially during 2017 and 2018, the statement said

“The company exited the individual line of business after the end of the 2016 benefit year, which drove a decrease in risk premiums and a marked improvement in operating results that was the main driver of capital and surplus growth,” Best said.

“Premium growth resumed over the past year as the company reported enrollment gains in its small-group business. The company’s fee revenue from its third-party administration business also has increased.”

Organic growth in PHP’s fully insured group commercial products increased its average number of members served last year by about 9% compared with 2017, according to Dustin Crider, its chief financial officer.

That growth and the company’s 2017 acquisition of Pro-Claim Plus, Inc. were the main drivers of a 205% increase in its average number of members served last year compared with the prior year, he said. Last year was the first full year of its combined operations with Pro-Claim.

PHP was among several health insurers across the country struggling to deal with the impact of the Affordable Care Act when it decided to discontinue its individual product lines by the end of 2016.

Provisions of the new law, along with “anomalies between state mandates, federal risk-sharing provisions and future uncertainty in the ACA have created unsustainable individual product lines for PHP,” it had said at the time. “Looking ahead, it doesn’t appear the market will correct soon.”

Even though individual products accounted for only a small share of PHP’s business, Michael Cahill, who was the company’s president and CEO at the time, said then that exiting the business was not an action taken lightly.

“We are disappointed that we feel forced to this difficult decision but we had to keep in mind that we do have a responsibility to the community and the beneficiaries we serve as a not for profit health insurer,” he said.

“By withdrawing from the individual market today, PHP can take the millions of dollars in losses we would incur and put that back into community efforts we’ve been supporting since our founding in 1983.”

Cahill is now banking services president for Fort Wayne-based Ruoff Home Mortgage and PHP’s president and CEO is Gary Shearer.

PHP lost money in 2016, but the corrective action it took helped it bounce back in 2017 and retain the B+ financial strength rating Best had assigned to it in 2006.

PHP lost $231,984 on revenues of $182.1 million in 2016, according to financial data on the 990 form nonprofits file with the Internal Revenue Service, which was supplied by ProPublica.

That compares with net income of $2.7 million on revenues of $194.5 million in 2015 and net income of $1.8 million on revenues of $215.4 million in 2014.

PHP’s revenues continued to decline, to $154.8 million in 2017, but its net income rose to $4.3 million that year. And Crider said last year the company saw net income of $7.1 million on revenues of $178.6 million.

The 2018 net income included one-time gains of $2.8 million due to the sale of certain securities in our investment portfolio, he said.

“Our management team and board were initially made aware of the rating upgrade when we were informed by A.M. Best,” Crider said.

“We are pleased with the recognition this upgrade provides relative to our strong capital position and the efforts made in recent years to diversify our product offerings and position PHP for continued growth,” he said. “When the rating became public, all PHP staff were informed via an email communication.”

PHP’s continues to focus on working with local employers, brokers, and providers to grow its fully insured and self-funded business in order to “accelerate our commitment to deliver greater value to our members,” Crider said.

The company also will focus in the future on continuing to give back to the communities it serves through PHP Foundation donations, he said.

“In 2019 PHP Foundation awarded $790,000 to not-for-profit organizations whose mission matches ours, promoting health equity for under-served, low-income residents in Northern Indiana,” Crider said.

Despite the ratings upgrade, AM Best said PHP remains exposed to some regulatory risk because about two thirds of its small group business is in Affordable Care Act compliant products.

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