Rehabilitation plan caps insurer Health Republic’s reversal of fortune

As a last resort, New Jersey’s health insurance co-op is exiting the insurance marketplace for 2017 in anticipation of a negative balance, after just three years in the state.The state Department of Banking and Insurance is seeking rehabilitation for the company, a kind of state-run bankruptcy.

That leaves New Jersey with only two Affordable Care Act exchange options for next year: AmeriHealth and Horizon Blue Cross Blue Shield of New Jersey.

The announcement Monday simultaneously revealed a sudden turn in the insurer’s financial status, as well as a change in management.

The insurer is now being led by interim CEO Tom Dwyer, making him the third CEO in the company’s three-year history.

Former CEO Robert Meehan retired on July 29, according to Health Republic, and Dwyer has been a consultant with the company since its inception.

In court documents filed in the Chancery Division, which seeks to put DOBI in charge of the insolvent insurer, Dwyer suggested the rehabilitation was a last resort.

“The company has expended significant time and effort to explore potential alternatives to (rehabilitation),” Dwyer said in the filings. “Unfortunately, Obamacare and local market conditions have proven difficult to raise substantial capital needed to survive in my beloved New Jersey.”

Dwyer also said the company intends to “continue to pursue any options for re-emerging to the marketplace in 2018.”

He also suggested the idea that the marketplace is in a slow death spiral.

Just a week ago, the term was used by New Jersey Health Care Quality Institute’s Linda Schwimmer. She was describing New Jersey’s own individual and small group market, pre-ACA, which had been in place since the early 1990s.

“We were ahead in many ways, such as having laws that prevented insurers from discriminating based on a person’s health history and allowing unmarried dependents to stay on their parents’ health insurance until the age of 31,” Schwimmer wrote in a blog post.

Though the federal health insurance marketplace has seen a significant reduction in competition this year for New Jersey, the individual and small market is still holding on.

Startup Oscar pulled out of the federal exchange, following United Healthcare Oxford and Aetna. The latter two are still selling products in New Jersey’s market, though.

Experts have said the market, despite New Jersey’s history, remained a challenge for small players like Oscar and Health Republic.

“As a new company breaking into the New Jersey health insurance market, (Health Republic) experienced significant compliance and operational difficulties,” according to court documents filed by DOBI.

The documents explain the rapid decrease causing the insurer’s “hazardous financial condition.”

The three programs used by the Centers for Medicare and Medicaid Services to help the industry stabilize as the federal government rolled out the ACA are the reason behind the instability of the company.

The risk adjustment program that redistributes funds collected from the health insurance plans is used to pay insurers who have larger high-risk (sicker, more expensive) populations by collecting from those with low-risk (healthier, less expensive) populations.

Health Republic was told in December 2015 that CMS projected its liability as $17.1 million. In June, the insurer was told that number was actually $46.3 million.

Currently, the cash on hand projected for 2017 for the insurer is $19.8 million, and CMS helped offset the amount owed through a $10 million solvency loan. There is about $37 million in incurred but not yet reported claims, resulting in a projected negative balance of $17 million. 

To start in 2013, Health Republic received federal funds totaling $14.7 million to fund solvency and $94.3 million to operate as a health insurer.

It started its first year with a small number of covered lives, and with more conservative rates saw a spike in 2015.

This year, the insurer has 15,879 policies covering 14,507 individuals and 1,372 small groups, according to court documents. That translates to 34,950 covered lives.

Those moving to rehabilitate the insurer are also seeking fast-track approval from the courts to avoid its being further liable to CMS collections, according to the court filings. There is a Sept. 20 meeting anticipated for CMS, which could result in further liabilities for Health Republic.

The question of how the insurer will return to the marketplace in 2018 after being out of business for a year remains unanswered, but experts said the changes in risk adjustment rules slated to go into effect that year may lead to a return of insurers.

CMS released a statement Monday, addressing the loss of the co-op.

“CMS takes its commitment to both co-op consumers and taxpayers seriously. Current policyholders are expected to be covered through the end of the year and will be able to shop for a new plan for 2017 during open enrollment beginning Nov. 1. CMS and state departments of insurance, which are the primary regulators, are working closely with co-ops and state departments of insurance to provide the best outcome for consumers and taxpayers,” according to the statement.

Officials from Health Republic have not returned calls for comment.