The demise of Health Republic Insurance of New York has left medical providers standing in line for whatever scraps of assets that can be found. But the health care insurer’s collapse has also paved the way for other companies to get a bigger share of the market.
Upstart insurer CareConnect is trying to do just that in Westchester County. It offers low rates, just as Health Republic did, but uses a business model that it thinks will circumvent constraints that all but guaranteed Health Republic’s failure.
“We have the polar opposite model,” said Alan Murray, CareConnect’s president and CEO. Health Republic’s way “could not work mathematically. It was an impossibility.”
Medical providers claim that Health Republic owes them around $200 million. Insurance brokers are claiming as much as $30 million in unpaid commissions.
Health Republic’s actual assets and liabilities will not be known for some time, according to state regulators.
“The reality is, I don’t think any money is left,” said James Schutzer, vice president of J.D. Moschitto & Associates employee benefits group in White Plains. “All you can do is get in line for whatever piece of the pie is left.”
Health Republic began operating in 2014 under the Affordable Care Act. It used a two-pronged strategy to quickly enroll members. Premiums were set 25 to 40 percent lower than other plans. It included a wide network of top hospitals, for which it paid more than its competitors.
The results were predictable. By last year, it had enrolled about 215,000 people in individual and small group plans in New York.
But it lost $77.5 million in 2014 and tens of millions more last year. Last fall, the U.S. Department of Human Services terminated loan agreements. The state Department of Financial Services ordered Health Republic to begin winding down business and to terminate all policies by the end of November. Last month, the state filed a liquidation proceeding in the Supreme Court of New York County.
Oxford Health Plans and CareConnect appear to have picked up many of Health Republic’s members, Schutzer said.
CareConnect enrolled 11,000 members in Westchester.
Oxford has about 60 percent of Westchester’s small-business market, according to Murray, followed by Empire Blue Cross Blue Shield with 12.5 percent, CareConnect, 12.5 percent, EmblemHealth, 10 percent, and Aetna 5 percent.
The timing of Health Republic’s collapse was good for CareConnect. The company was founded in 2013, the same time as Health Republic, but concentrated first in Long Island to test its business model before expanding. It had only 600 members in Westchester.
It began building the Westchester network in 2014. Now it has partnerships with Northern Westchester Hospital, Phelps Memorial Hospital Center, White Plains Hospital, Montefiore New Rochelle and Montefiore Mount Vernon.
Members have access to 1,800 doctors, including 70 locations run by CareMount Medical, Westmed Medical Group, Westchester Health Associates and ENT & Allergy Associates.
When Health Republic imploded, CareConnect was poised to strike. It focused on small-business groups which, historically, have been more a more stable market than individual insurance buyers.
Previously, most of CareConnect’s members were individuals. Now 70 percent of its business consists of members enrolled through small-business groups.
Premiums are 20 to 30 percent lower than its competition. The small-business gold plan, for example, costs about $500, Murray said, or $150 to $200 less than other health plans.
If competitors increase rates significantly, he said, “I don’t intend to follow too closely.”
So how can CareConnect make money when Health Republic, with low rates, could not?
He said the answer is concentration and coordination.
By concentrating the network on one-third of the physicians operating in Westchester, the insurer can drive volume to those practices and get discounts on services.
A narrow network also enables CareConnect to coordinate medical care more closely. That means doctors and nurses can manage patients with chronic illnesses more effectively.
The company also has as built-in advantage. It was created by Northwell Health, formerly known as the North Shore-LIJ Health System, in Great Neck. Northwell is the state’s largest private employer and health care provider.
Northwell already has the know-how to coordinate patient care. For instance, when someone leaves the hospital, Northwell Health Solutions makes sure the patient understands the discharge instructions, takes the right medications and gets to the right specialists, thus decreasing the chance of a costly readmission.
“It’s a tight, integrative process to maximize the outcome for that patient,” Murray said. “That exists because we’re part of the same family.”
So far, CareConnect’s medical loss ratio – the percentage of premiums spent on claims – is running around 85 percent. That’s about the same as other health care insurers.
But CareConnect is a new business with high startup costs. It lost more than $20 million in 2014 and the “high $30 millions” last year. Murray expects the company to turn the corner this year and make a profit in 2017.
CareConnect has 94,861 members, mostly in Nassau, Suffolk, Queens and Westchester counties. It needs 100,000 to 120,000 members and a balanced mix of individual and small-group enrollees to make the plan work.
Its geographic strategy is to offer services within 70 to 100 miles of New York City. It is looking to expand in southern Connecticut and is considering northern New Jersey.
But Murray said he will not chase membership.
“I want to chase the appropriate growth for the right reasons,” he said. “We’re building a clinically integrated insurance provider model.”
When people see the value of the network, he said, they will sign up.