Why two Colorado insurance companies collapsed in one year, and what it means for those scrambling to find replacements

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Hart Van Denburg/CPR News
Alexis Daugherty, Jeremy Jerez and their 6-month-old son at home in Littleton on Thursday, Aug. 10, 2023.

Alexis Daugherty faced two big changes last winter.

The first was finding health insurance. Her old insurance carrier, Bright HealthCare, was going out of business in Colorado's individual health insurance market, and she needed a new one by Jan. 1.

The second big change: She and her partner were expecting a baby boy a couple months later.

Getting new insurance “was just one more thing to add to my list of things to do before I had my baby,” said Daugherty, a self-employed real-estate agent. “But it didn't seem too alarming or weird to me.”

Not too alarming at the time, anyway.

As it turned out, finding a new insurance policy was only the beginning of an infuriating health care odyssey for Daugherty — one that has also affected tens of thousands of other Coloradans and raised questions about the state and federal governments’ ability to regulate fast-growing health insurance companies.

A scant seven months after finding another insurance provider, the young mother learned that her new insurer, Friday Health Plans, was also imploding. The situation was so dire that state regulators announced they would close down the Colorado-based company on Aug. 31, in the middle of the insurance year. 

“I'm dealing with this for the second time in a year,” she said with a rueful laugh. “So yeah, it's a little frustrating.”

Thousands of dollars, thousands of customers

More than just frustrating, this latest insurance collapse comes with significant financial implications and health care challenges for some 30,000 customers of Friday Health in Colorado — not to mention hundreds of thousands more in other states.

In Colorado, customers of the failed company now must buy a new policy before Sept. 1 if they want to avoid a gap in their insurance.

Besides the headache, switching mid-year can hit the pocketbook hard, as people may lose out on all the deductible and out-of-pocket costs that they have paid so far. For example, Daugherty had paid $7,000 for her son’s birth, hitting her out-of-pocket maximum with her Friday Health insurance plan. That would normally guarantee that insurance picks up most of her costs for the rest of the year. But switching insurers now could mean starting over with a new deductible.

Daugherty was able to avoid that cost by switching to Kaiser Permanente, one of two insurers that is allowing Friday Health customers to carry over their progress on deductibles. But Kaiser has its own network of doctors, forcing new customers to change providers. (Denver Health Medical Plan has also agreed to honor deductibles.)

Switching doctors isn’t an option for Lauren Gibbs, who needs a specialized set of providers for her health conditions. She’s trying to find the right insurance policy, but she expects to lose $3,000 of progress on her deductible.

“That's $3,000 more than I thought I'd have to spend on health care,” Gibbs said. “That's why we have insurance so that we don't have to have an unexpected $3,000 expense.”

Gibbs, like Daugherty, is also a self-employed real-estate professional — and she also went through the collapse of Bright HealthCare just a few months earlier.

“The [health insurance] exchange is there to kind of have some safeguards that these are vetted plans, not just an open market,” she said. “But it's not feeling like there's a safety net for me right now.”

She’s switching to Anthem, resetting her deductible, and still losing coverage for one of her five medical providers. Former customers of Friday Health will also be able to try to recover their lost deductibles from the estate of the company -- a process that the state plans to establish in the coming weeks.

Setting low prices and burning capital

Friday Health Plans was a homegrown Colorado company — based in Alamosa and offering plans on the state health exchange since 2014 when it was known as Colorado Choice Health Plans.

It was a small enterprise, but a persistent one, hitting its peak of about 30,000 Colorado customers this year — mostly by selling policies on the exchange.

Meanwhile, Bright HealthCare — the other ultimately unsuccessful insurer — entered the Colorado market in 2017 and soon grew to 55,000 customers. The companies were relatively small, but they were growing in multiple states — hoping to capture more of the individual health insurance market created by the Affordable Care Act.

For customers, it seemed to be a boon. The law guaranteed that people like Gibbs could get coverage even with a preexisting condition, and the companies offered competitive rates.

“It really wasn't until Obamacare was a thing that I could really think about being out on my own because of my health needs,” Gibbs said.

Investors saw an opportunity, too. They pumped hundreds of millions of dollars into the national businesses of both Friday Health and Bright HealthCare.

But in Colorado, concerns grew in recent years.

Private equity investors “tend to drive for the highest maximum profits as quickly as possible. And sometimes that is not necessarily a functional business model in the health care space,” said Adam Fox, deputy director of the nonprofit Colorado Consumer Health Initiative.

Critics say the two companies may have kept their prices artificially low, taking risky strategies and plugging the holes with investor money, allowing them to hang in the middle of the pack or even beat the premiums offered by much larger companies. 

Friday Health dropped its prices or kept them flat each year from 2019 to 2022. That approach was a consistent worry for the state’s top insurance regulator.

“Over the last few years, we thought that the rates that they had filed were just simply too aggressive,” said insurance commissioner Michael Conway. “They were attempting to kind of buy market share in an inappropriate way.”

As Friday’s business faltered last year, Colorado regulators put it under supervision — though, due to confidentiality laws, they didn’t warn customers of the change.

“When I was shopping as a consumer for it last fall, I didn't know that [Friday Health was under scrutiny.] I highly doubt that my providers were alerted to it because they were all telling me this seems like a good option,” Gibbs said of her decision to buy a Friday Health plan late in 2022.

By early this summer, Colorado regulators had seized control of the company’s state-level business. Shortly afterward, the insurer's parent company announced that it would be shutting down on July 6, leaving the state with much more responsibility for the administration of the company. And the company's finances were worse than regulators had believed, said spokesman Vincent Plymell.

Finding a situation even more dire than they expected, state regulators decided to shut the company down later this summer — hoping to avoid a situation where doctors refuse to work with the increasingly shaky company.

“We have serious questions about whether the [financial] projections that they gave to us were accurate,” Conway said. The company’s national leaders made it hard for state regulators to get the full picture, he said, adding that Friday Health's C-suite had proved “willing to [say] things that are not factually accurate.”

Representatives for Friday Health didn’t respond to requests for comment.

Several other states also have taken control of and liquidated Friday Health’s business. The company once did business in seven states in all.

Meanwhile, Bright HealthCare was able to pull out of the market voluntarily. As of Jan. 1, it had stopped selling almost all of its individual, family and Medicare Advantage plans nationwide.

Want to talk about your experience with Friday Health or Bright HealthCare? Email reporter Andrew Kenney.

Why couldn’t state regulators stop the implosion?

Conway maintains that his division appropriately used its regulatory powers to keep insurers in line. For example, state regulators forced Friday Health to set higher prices than the company had originally proposed in both 2021 and 2023.

The problem, Conway contends, was with other states. While Friday Health grew at a more restrained pace in Colorado, its membership exploded elsewhere. The company crowed that its membership nationwide increased by 400 percent in 2021, and then again by another 400 percent the next year.

In Texas, Friday Health grew from 60,000 members in 2021 to 300,000 in 2022 — ten times larger than its business in Colorado — before Texas regulators shut down the company’s business in the state at the end of the year. 

That year, the company ran an operating loss of nearly $33 million in Texas, and it carried $800 million of liabilities on $555 million in assets, according to a court document filed by Texas regulators.

Ultimately, Conway blamed the two companies’ demise on over-expansion in states like Texas, as well as the company’s failure to anticipate the whiplash effect the pandemic had on health insurance markets.

“They positioned themselves very, very aggressively in some of the other states, and that's in Texas in particular. And that was what kind of led to their problems,” Conway said.

But, in a sense, Texas regulators’ hands were tied. Unlike Colorado, they didn’t have the power to regulate insurance prices until recently, a spokesman said. He noted federal regulators were the ones reviewing Friday Health’s prices in Texas in 2021 and 2022. 

The federal Department of Health and Human Services didn’t immediately respond to a request for comment.

What happens differently next time?

Fox, of CCHI, said that the insurance implosions point to a need for more skepticism of the use of private capital to buoy the health insurance market — a conversation that could be spurred by the two failures.

It also points to the stark differences in the approaches the states have taken to regulation.

“Colorado has a much more robust structure for reviewing insurance rates. And unfortunately, a lot of other states don't have that same oversight,” he said. 

That’s starting to change. Texas regulators gained price oversight this year. But ultimately, Conway said regulators will need to work more closely together across states.

“I think there's lessons to be learned about trying to work more cohesively with our partners in other states to try and put [enrollment] caps in place,” he said.

Will Friday Health lead to ripple effects?

State lawmakers created a backstop to ensure Friday Health’s collapse doesn’t leave doctors or patients on the hook. Friday Health plans are now covered by the state’s Guaranty Association, which can pay claims even if the company’s funds are exhausted.

That money ultimately comes from other insurance providers, which could lead them to raise their own premiums. But Conway said he expects the effect to be small because Friday Health seems to have had enough money to pay its own claims for most of the year.

“Insurance companies have always failed. This isn't a new phenomenon," he said, “and there's always a willingness by other insurance companies to come in and continue to compete.”

Another new company, the nonprofit Select Health, plans to expand into Colorado next year.

Conway maintained that the state’s insurance market overall remains healthy.

But some Friday Health customers have had their confidence shaken. 

Jeremy Jerez had avoided health insurance and doctors for years before finally deciding to sign up for Friday Health. Now, he’s worried he’ll be sent back to square one.

“I finally am getting some rapport with some doctors and some momentum on all the things I've procrastinated. And here we are worrying about if I'm going to be able to continue with the doctors that I've established,” he said. “I'm just caught in the thick of it.”

As of last week, about 15 percent of Friday Health’s Colorado customers had re-enrolled in new plans.

People hoping to avoid a gap in coverage must select new insurance by Aug. 31, but Friday Health customers can continue to select new plans through a special enrollment period until Oct. 31. After that, the normal enrollment period will open.

Editor’s note: This article was updated Aug. 11, 2023 to clarify the timeline for re-enrollment.