URBANA – An executive of Health Alliance Medical Plans says the downgraded financial outlook given to the company this week by credit rating firm A.M. Best is based on Illinois' financial crisis.

A large chunk of Urbana-based Health Alliance's business is providing health coverage for some 78,000 state employees and their dependents, and Illinois is $132 million behind in paying the premiums for those Health Alliance members, according to the insurer's Chief Financial Officer Gordon Salm.

Salm said the outstanding debt is for a period between September and December when the state stopped paying. The state resumed monthly payments to Health Alliance in mid-December, he said, but has never caught up on the gap.

"They're paying monthly, but they're not catching up," he said.

A.M. Best this week revised its financial outlook from "stable" to "negative" for Health Alliance, but also affirmed the B++ and B+ (both good) financial strength ratings of Health Alliance and its affiliate Health Alliance-Midwest Inc.

Best also affirmed "bbb" (good) and "bbb-" ratings for the company's credit ratings.

Best said the downgraded financial outlook took into consideration Illinois' financial crisis and Health Alliance's business concentration risk in Illinois, and the fact that a single account makes up a substantial portion of the company's total revenue and membership base.

"While the (state) account has commenced making payments, it is significantly behind, and the ultimate outcome of the situation is presently unknown," the rating company said.

Best said it remains concerned about the financial impact this will have on the company's revenue and earnings, both of which could be weakened due to the pressures of a single-state market, intense competition and a volatile economic climate.

Best said Health Alliance's situation could be somewhat mitigated by a pending purchase of Carle Clinic and its subsidiary, Health Alliance, for $250 million by the Carle Foundation. Both the foundation board and clinic owners have approved the purchase, but it must also be approved by state and federal regulators.

"We're a secure organization," Salm said. "(Best) is just concerned that decisions out of our control may have an impact on our ability to maintain that rating."

Carol Knowles, spokeswoman for state Comptroller Daniel Hynes, said the Illinois Department of Healthcare and Family Services pays the premium bills for health coverage for state employees and their dependents, and that agency is underfunded for health care payments.

Stacey Solano, spokeswoman for Healthcare and Family Services, said the state's cash management plan assumes payments will continue to Health Alliance through the remainder of the fiscal year.

Because the state is continuing its development of fiscal 2011 budget, it's impossible to project payment cycles beyond June 30 of this year, she said.