By several accounts, DFS did not monitor Health Republic closely, aside from handling initial consumer complaints. It wasn't until early 2015 that DFS began demanding monthly financial reports from Health Republic instead of only quarterly and year-end financial statements. By then, the company realized it had lost $77.5 million in 2014, an amount it had still hoped would be covered by the federal backstop. Meanwhile, Health Republic's executives tried to reduce losses. They stopped selling policies in several upstate counties where claims were particularly high. The company also tried to interact directly with providers to manage patient care that generated expensive claims but was blocked by the restrictive contracts that had been signed with MagnaCare.
In May 2015, after 17 months in operation, Health Republic hired Nakomis Health of Minneapolis to conduct a rigorous review of medical claims handled by POMCO. Nakomis found $26 million in overpayments, according to a lawsuit the company filed against Health Republic in March seeking $4.8 million in fees. DFS began threatening to shut down Health Republic, but the company argued it would be solvent through 2016 if only its risk corridor funds came through. When the federal government told New York in early September that the insurer would get only 13% of its expected funding, DFS moved quickly. “Health Republic had to cease operations,” Oechsner said. The company was ordered to shut down by Dec. 31.
That date was soon moved up when an October follow-up audit showed the company's finances were “substantially worse” than first identified, Oechsner said. The audit uncovered other “discrepancies” since Health Republic's previous financial report. Unwilling to wait until the end of the year, the state shut down the company Nov. 30, leaving 209,000 Health Republic clients to find new coverage.
Those financial inconsistencies prompted DFS to announce it would investigate Health Republic. Health Republic's top management cited the investigation as the reason it couldn't comment for this article. Several former staffers said executives told them not to speak to the press. The insurer's office in downtown Manhattan shut down in November and its assets, if any, are being managed by the restructuring firm Alvarez & Marsal, which didn't return calls for comment. Horowitz has deflected responsibility for Health Republic's collapse. The CO-OP's management team, Horowitz said, was responsible for the decisions that led to the insurer's downfall. She said Health Republic's management was wrong to set low premiums that overwhelmed the company. She had a role in hiring both CEOs, and Freelancers Union's IWS unit provided consulting services in 2012 and 2013—when disastrous decisions were made. But Freelancers Union also said that IWS had recommended using a less expensive network. And Horowitz blamed crippling funding cuts by congressional Republicans led by Florida Sen. Marco Rubio.
“Hundreds of people and thousands of hours went into creating Health Republic because there was a belief that we could do something unique and special—help thousands of New Yorkers secure quality affordable health care for the first time,” Horowitz said in an email. “Freelancers Union got involved because we believed in the CO-OPs' social-purpose mission to provide nonprofit, consumer-driven health care to individual workers.”
Regarding the current state investigation, “the company allegedly misrepresented its numbers to DFS,” Freelancers Union said in a statement. “Officials are right to demand answers and hold any wrongdoing accountable.” Feeling the fallout It's been decades since a New York health insurer has cratered so dramatically. Providers told Crain's they signed contracts to treat Health Republic members because they assumed the insurer had been fully vetted by the state. The Cuomo administration had even issued press releases in 2014 and 2015 crediting DFS' oversight as evidence of the state's role in keeping premiums affordable.
“We feel betrayed,” said Robert Glazer, chief executive of ENT and Allergy Associates, a large medical practice with 173 physicians. The only warning signs of trouble were early last year, when Health Republic delayed claim payments by three to four months.
At a forum held at the state Senate earlier this year, insurers and providers argued that DFS should have known Health Republic's rates were unsustainable. DFS's Oechsner said Health Republic's actuary, Milliman, certified that the proposed rates were “actuarially sound.” He added that because the Obamacare marketplace was new, there were many “uncertainties” related to all the insurers' rates. But those uncertainties were supposed to be offset by the promised federal funds.
The fallout over DFS's prior-approval powers continues in the wake of Health Republic's demise. At a mid-March state budget hearing, Republican state Sen. Kemp Hannon slammed the state law, blaming it for the “impairment” of insurers and “artificial setting of rates.”
Hospitals said Health Republic owes them an estimated $200 million in unpaid claims, including $22 million at Northwell Health and $4.8 million at NYU Langone Medical Center. Northwell Health (formerly the North Shore-LIJ Health System) filed a lawsuit in November seeking damages in excess of $15 million, plus interest and legal fees.
“We have no idea if our doctors will be reimbursed,” said Glazer, whose practice is owed more than $650,000. Even if money is recovered, Oechsner said payments to providers “would likely be modest at best.”
Additional reporting by Jonathan LaMantia. This article was written with the support of a grant from the Urban Reporting Program of the CUNY Graduate School of Journalism.