Regulators to Shut Down Health Republic Insurance of New York

Posted on September 29, 2015

Officials cite likelihood that health cooperative would become financially insolvent

THE WALL STREET JOURNAL

By ANNA WILDE MATHEWS
Updated Sept. 25, 2015 11:53 p.m. ET

Regulators will shut down Health Republic Insurance of New York, the largest of the nonprofit cooperatives created under the Affordable Care Act, in the latest sign of the financial pressures facing many insurers that participated in the law's new marketplaces.

The insurer lost about $52.7 million in the first six months of this year, on top of a $77.5 million loss in 2014, according to regulatory filings. The move to wind down its operations was made jointly by officials from the federal Centers for Medicare & Medicaid Services; New York's state insurance exchange, known as New York State of Health; and the New York State Department of Financial Services.

In a statement, Health Republic said it was “deeply disappointed� by the outcome, and pointed to “challenges placed on us by the structure of the CO-OP program.�

Health Republic has about 215,000 members, with about half holding individual plans and half under small-business coverage, a spokesman for the insurer said.

The regulators said they chose to take action before the exchange's November open enrollment period, when individuals can choose coverage with a new insurer. Health Republic policies will remain in effect amid “an orderly wind down� of the insurer's operations, they said. In a statement, Kevin Counihan, the CMS official who oversees insurance marketplace operations, said the move came “because of the likelihood that Health Republic Insurance of New York would become financially insolvent.�

The shuttering of Health Republic, at least the fourth to falter among the ACA's original 23 co-ops around the country, reflects the losses many insurers are seeing in their business related to the health law's exchanges, which are particularly acute for small plans without deep pockets or diversified lines of business.

In Health Republic's case, its premiums appeared not to be set high enough to cover members' health expenses and its own costs, said Deep Banerjee, an analyst with Standard & Poor's Ratings Services. “They are paying out in claims and expenses a lot more than they are getting in the door,� he said.

A Health Republic spokesman said the insurer didn't receive the full rate increases it requested from state regulators for 2015, and “we didn't feel as if we got rate adequacy� for this year's plans.

The situation was complicated by programs created under the health law to ease risks for insurers that signed up a lot of sicker, more-costly enrollees. Under one of those programs, Health Republic had expected to break even, but instead it was assessed to pay around $80 million into the program's pool, likely reflecting that it enrolled a relatively healthier clientele compared with competitors. Health Republic also expected to receive $147 million under another one of those programs, known as risk corridors, the insurer said. Because of a tweak to a federal spending bill, insurers may not get as much as they have projected, Mr. Banerjee said—an issue that could squeeze other companies.

The co-ops were set up as nonprofit insurance entities governed by their members, and analysts have said several of those that remain are in challenging financial straits. Health Republic's membership is far larger than the next-biggest co-op, which had around 131,000 enrolled, according to Mr. Banerjee.

The Iowa insurance regulator said in January that it would shut down CoOportunity Health. At least two other co-ops, in Nevada and Louisiana, have said they won't offer plans next year.

Two other co-ops bearing the Health Republic name, in New Jersey and Oregon, are independent operations and not affected by the New York plan's situation, a spokeswoman for the New Jersey plan said. The Oregon plan said in a statement: “While we share a common name, we are a completely independent company.…[and] are not financially connected to Health Republic Insurance of New York.�

Corrections & Amplifications:
The amount Health Republic Insurance of New York expected to receive under the federal risk-corridor program for 2014 was most recently $147 million. A previous version of this article cited an older figure of $58 million included in an analyst report. (Sept. 25, 2015)