With Health Republic folding, state insurance marketplace faces disruption
New York”™s first nonprofit health insurance co-op from the state-run exchange is closing ahead of schedule, leaving 200,000 members without insurance starting Dec. 1. Health Republic Insurance of New York joins 11 other co-ops around the country that have recently folded.
Health Republic was one of 23 original nonprofit health insurers, referred to as a consumer operated and oriented plan, or co-op, created across the nation as part of the federal Affordable Care Act to make insurance marketplaces more competitive.
The state Department of Financial Services and the federal Centers for Medicare and Medicaid Services announced Sept. 25 that Health Republic would not be offering policies in 2016 and that individual members would be covered through Dec. 31, but needed to find a new insurer during the open-enrollment period that started Nov. 1. At that point, Health Republic”™s small group policies would remain in effect.
The agencies said the reason for Health Republic”™s closing was due to fear that it would become financially insolvent.
On Oct. 30, about a month after the initial announcement, the agencies wrote in another release that “the company”™s financial condition is substantially worse” than previously thought and said all of Health Republic”™s policies would now end Nov. 30, a month sooner than what was first announced in September. In addition, customers would not be covered by Health Republic for December 2015 and needed to select a new plan before Nov. 15.
In Westchester County, 10,441 individuals and 9,784 small groups that signed up for Health Republic both on the state”™s insurance marketplace exchange, NY State of Health, and off the health exchange, will lose coverage.
To help ensure individuals who signed up through the exchange don”™t lose coverage in December, the state is automatically enrolling individual Health Republic customers into comparable plans with other insurers in the marketplace.
Despite that one mitigating factor, the New York State of Health marketplace is expected to see major disruption with the influx of customers in need of insurance. Other insurers from the marketplace declined to comment specifically on the challenges they anticipate from Health Republic”™s folding, but some said they will provide assistance to help meet the needs of those affected by the co-op”™s collapse.
James D. Schutzer, an insurance broker and vice president of J.D. Moschitto & Associates Inc. in White Plains, said Health Republic”™s model of providing extremely low rates was never a long-term, sustainable model.
Since Health Republic began offering coverage in January 2014, the insurer had touted its low premiums and historic member enrollment.
“Everybody knew that the rates were not sustainable long-term. You can”™t be priced that far under the market while you”™re leasing a network of providers,” Schutzer said.
During the summer of 2014, Health Republic sought to increase premium rates for fiscal year 2015. The state Department of Financial Services approved an average increase of 3.36 percent for the insurer”™s small group plans and an average increase of 13.04 percent for individuals.
A year later at the end of this summer, Health Republic was approved for an average 20 percent increase in small group rates and about a 14 percent average increase for individuals for 2016.
This, Schutzer said, suggested that Health Republic underpriced their products for a couple of years and now its low rates and high claims were catching up to them.
But the nail in the coffin for Health Republic, Schutzer said, was the lack of funds coming from the risk corridor program set up through the Affordable Care Act. These low-interest loans were meant to help fill budget gaps during the co-ops”™ first few years after getting off the ground.
The risk corridor program was supposed to receive $6 billion to disperse to co-ops , but funding was cut from the program and so far only $2.4 billion have been dispersed. This year, the co-ops had requested about $2.87 billion in funds from the risk corridor program, but received 12.6 percent of that, or $362 million.
It remains unclear how or if Health Republic, and the other co-ops that folded in states including Kentucky, Tennessee and Oregon, are going to repay those risk corridor loans. Health Republic owes at least $265 million in federal loans.
In an emailed statement, Health Republic said that is has “been working closely and transparently with our state and federal regulators since our inception, including monthly regulatory filings and numerous meetings to discuss potential avenues to improve our position.”
The insurer also said, “Considering the insurmountable financial gap created largely by the risk corridor program only paying out 12.6 percent of the $149 million Health Republic was owed for 2014, we believe winding down on November 30th is a prudent decision.”