The nation’s biggest nonprofit health insurer spawned by the Affordable Care Act has been ordered to shut down as it reels toward insolvency, disrupting coverage for more than 200,000 New York state residents and becoming the fourth such co-op to collapse in recent months.
The action Friday to force Health Republic Insurance of New York out of business was a coordinated maneuver by state regulators and by federal health officials, who have been trying to nurture fledgling co-ops while dealing with the reality that most are hemorrhaging red ink.
Their move is the latest — and, so far, the largest — blow to an aspect of the 2010 health-care law that was intended to foster a new breed of health coverage. These Consumer Oriented and Operated Plans (CO-OP) were envisioned as an alternative to the traditional insurance companies that dominate the nation’s health coverage landscape.
Many of the 23 co-ops that opened for business nearly two years ago have struggled for a toehold. But New York’s quickly became popular, attracting more than 150,000 members in its first year and, by this summer, about 210,000 members, who bought coverage on their own or through small businesses.
Among 16 insurers selling individual health plans in New York’s ACA insurance exchange, it became the second most popular, enrolling about 75,000 people through the marketplace.
Even as it ran consistent financial losses — about $53 million midway through this year — many insurance industry and health policy experts believed that Health Republic was too big for the government to let it fail.
Instead, in synchronized moves Friday, the Department of Health and Human Services canceled an agreement that has funneled $265 million in start-up loans to Health Republic, and New York health officials blocked it from selling policies on that state’s exchange. State insurance regulators ordered it to stop accepting new members immediately.
“While we are deeply disappointed with this outcome, we believe it is in the best interests of our members,” Health Republic spokesman Michael Fagan said in a statement. He and federal health officials emphasized that, by beginning the shutdown now, they’re giving members ample opportunity to switch to a different plan during the three-month ACA open-enrollment season that begins nationwide on Nov. 1.
The co-op’s individual health plans will end in December. The ending time for small-business health plans will vary.
Health Republic becomes the fourth co-op to founder in less than a year. Just last month, a co-op in Nevada said it would close at the end of the year. Louisiana’s co-op also is shutting down then, and a co-op that sold health plans in Iowa and Nebraska went out of business last winter.
“We are not going to rule out that there may be others this year,” said a federal health official, speaking on the condition of anonymity to discuss internal information. “This is a tough, tough, tough business.”
Because each co-op exists in a different state and different health insurance climate, Health Republic’s collapse is not a harbinger for all the rest, said Peter Beilenson, chief executive of Evergreen Health Cooperative in Maryland. Still, he said, “it clearly is not good for the [co-op] program, because it is the biggest one, and it’s obviously going to get a lot of attention.”
Beilenson said that Health Republic’s failure shows that federal health officials should make it easier for the co-ops to raise outside capital, which some need if they’re going to last long enough for them to become financially stable.
The federal health official said that in July, HHS administrators “identified issues that we kind of felt threatened the company’s financial solvency.” Administrators in the department’s Centers for Medicare and Medicaid Services, which oversee many aspects of the ACA, reviewed Health Republic’s financial filings and conferred with state regulators and co-op leaders.
Ultimately, they concluded that “there was a fairly high likelihood the company would become financially insolvent.”
Fagan said that state insurance regulators already had approved the rates that the co-op could charge for its 2016 plans. But before Friday, New York State of Health, the exchange created under the federal health-care law, had not yet decided whether Health Republic could continue to participate in the marketplace for the coming year, and so the insurer had not begun promotions for the coming open-enrollment season.
In explaining what went wrong, Health Republic referred to decisions, by Congress and the Obama administration, that cut by more than half the amount of federal money the ACA originally would have provided the co-ops to help them get started and compete against larger, more-established insurance companies.
“Starting a new insurance company is a daunting task in any environment,” Fagan said, “but the challenges placed on us by the structure of the CO-OP program as enacted by a bitterly partisan Congress were simply too difficult to overcome.”