Three subsidiaries of EmblemHealth of New York, N.Y., had their ratings downgraded by A.M. Best because of insufficient reimbursement levels for state-sponsored plans, meaning problems for its medical loss ratio.

A financial strength ratings of B (Fair), down from B+ (Good), and issuer credit ratings of “bb+,” down from “bbb-” were assigned to Health Insurance Plan of Greater New York, Insurance Company of New York and ConnectiCare of Farmington, Conn.

A.M. Best also downgraded the financial strength ratings to C+++ (Marginal) from B- (Fair) and issuer credit ratings to “b” from “bb-” of Group Health Incorporated and GHI HMO Select Inc., both of New York.

The outlook for all ratings has been revised to “negative” from “stable” and the ratings downgrades reflect the underwriting losses, significant investment losses and declined capitalization, according to A.M. Best.

HIP’s insufficient reimbursement levels for state-sponsored programs have caused a significant increase in its medical loss ratio since 2006, the ratings service said, leading to a $13.4 million underwriting loss in 2008 compared to a $190 million gain in 2005.

Further impacting operating results were a shift in utilization patterns as more members switched from HIP’s physician practices to general fee-for service providers, A.M. Best noted. HIP’s operating results in 2008 were further negatively affected by $98 million in realized losses in equity and fixed income portfolios following the severe financial markets downturn.

Regarding GHI, the ratings actions reflect its very low capitalization level, the ratings service said. Following significant improvement in 2007, the capital at GHI experienced a 24% decline in 2008, partly due to the deterioration and $41 million write-down of GHI’s headquarters (building) as a result of the real estate market conditions.

The capital decrease also was affected by the $38 million of realized and $74 million of unrealized investment losses in the equity and fixed income portfolios, according to A.M. Best.

As of March 2009, GHI’s capitalization level was substantially below New York State requirements, the ratings service noted, however, the company historically maintained low capitalization and remained under the state-required reserve level from 2000 to 2006, and only improved the capital position in 2007 by increasing the assessment of its headquarters’ real estate value.

The offsetting factors for all ratings include sizable market share, continuous operational and technological improvements as well as opportunities for new synergies following the HIP-GHI merger.

The negative outlook for all ratings recognizes the continued underwriting and realized losses reported in first quarter 2009. A.M. Best is concerned that should these losses persist and increase throughout the remainder of the year, the capitalization of these entities could weaken further.