Friday Health Plans is closing after multiple states stepped in this week to halt its operations and as creditors refuse to front more principal, the health insurer announced Thursday.
Regulators in all the states in which the company operates — Colorado, Georgia, Nevada, New Mexico, North Carolina, Oklahoma and Texas — have barred Friday Health from hiring additional members due to its tough finances.
“Friday has been unable to scale our financial infrastructure to match the pace of our growth and secure the additional capital needed to operate our business. While we are deeply disappointed, we agree with the decision of our state regulators which is need to wind down Friday’s business operations over time,” Friday Health Plans said in its statement. “We believe this action is in the best interests of our members. We deeply appreciate our employees for all of their hard work and dedication to Friday and are grateful for their support as we navigate this process.”
Like Oscar Health and Bright Health Group, Friday Health aimed to disrupt health insurance trades with new technology and low-cost policies, betting that consumers were moving away from job-based coverage and toward individual plans. Friday Health also sells health reimbursement deals that allow small employers to give tax-free subsidies that workers can use to buy plans on exchanges.
The privately held company has raised $306.1 million in equity and debt to support its operations, according to Crunchbase. Venture capital investors’ interest in the sector reflects a misconception about the profits insurers can generate, said David Anderson, a research associate at Duke University’s Margolis Center for Health Policy.
“Insurance should basically be a mostly boring business,” Anderson said. “Once you put in the substantial [medical loss ratio] limits, the types of profit that VCs want to make on their investments are not there. You just don’t have the edge.
Exchange insurers must spend at least 80% of premiums on medical care or pay back the difference, which essentially puts a cap on profit margins from insurance sales.
Anderson said that, like other venture-backed insurers, Friday Health undervalued its products to build market share. In its most recent funding announcement in May 2022, Friday Health reported it employs 600 people and serves more than 330,000 members.
Friday Health focuses on the individual market, so the company’s health plans likely aren’t attractive acquisition targets due to member churn, Anderson said.
The startup will shut down operations in Colorado after failing to secure additional funds from investors, the Colorado Division of Insurance announced in a news release Thursday. Friday Health’s exit from Colorado comes a day after Georgia regulators seized assets from its local branch. The Georgia office of the Commissioner of Insurance and Fire Safety did not respond to a receivership request. Texas regulators declared Friday Health insolvency in March.
“Friday’s problems are national: The company’s aggressive growth in other states around the country has frontloaded their funding,” Colorado Insurance Commissioner Michael Conway said in the news release. “While Friday Health of Colorado has maintained the capital required by Colorado law, issues in other states and with the parent company are now impacting society here.”
The Colorado branch of Friday Health held $24.8 million in cash at the end of 2022, according to state regulatory filings. The company needed to raise $60 million to $100 million to stay afloat in the state this year, Conway said in an interview. Colorado could place Friday Health under receivership, Conway said.
“In a world where we have a free market in healthcare, we have to let insurers in that market make the business decisions they think are good, and sometimes they won’t work,” said Conway. Our main goal is to get the company through the rest of the plan year.”
In Georgia, regulators ordered the company to close its policies next month. The Friday Health branch in the state reported a $48.1 million deficit last year after posting an $11.1 million net loss, according to state filings. Georgia will implement a special enrollment period for Friday Health’s more than 35,000 enrollees who will need to register for new coverage.