After months of uncertainty surrounding Health Republic Insurance of New York's liquidation process, new court documents released April 22 provide clarity on what creditors can expect to receive. That is a welcome development for doctors and other providers who say are owed more than $200 million.
The state Department of Financial Services, now led by Acting Superintendent Maria Vullo, began the liquidation proceeding last week by filing a verified petition and order to show cause in New York State Supreme Court. In doing so, Vullo declared the insurer insolvent, given "required reserves and other liabilities exceed its admitted assets."
While that description gets to the heart of Health Republic's insolvency, a Crain's investigation published last week described several factors contributing to its demise, including initial premiums that were set too low, missteps by inexperienced executives and an over reliance on outside vendors to perform key operational functions.
The initial court documents do not specify the value of claims against Health Republic nor the value of assets available to pay debts. DFS previously noted that a provider should be able to receive a portion of their claims. But it's now clear vendors and brokers are out of luck.
"Absent the receipt of substantial additional recoveries it is unlikely that HRINY will have sufficient assets to satisfy claims against HRINY other than claims for administrative expenses and a portion of policy claims," David Holgado, senior enforcement counsel for state Attorney General Eric Schneiderman wrote in a memorandum of law supporting the petition.
DFS has the power to liquidate the insurer's assets because it had the consent of Health Republic's board, which acknowledged that the company had insufficient money to maintain statutory reserve requirements.
"The Superintendent submits that placing HRINY into liquidation and granting the relief requested in the order to show cause and proposed liquidation order is in the best interest of HRINY's members, providers and other creditors as well as the public," Holgado wrote.
In the petition, Vullo stated that DFS and the Centers for Medicare and Medicaid Services, the federal agency that oversees Health Republic, became aware in June 2015 of "certain financial and other reporting errors" in the insurer's annual report after the company was audited by accounting firm BDO. The state and federal regulators directed Health Republic to revise its financial statements, and after "taking certain other investigative actions" determined that by year's end, assets would be less than its liabilities and required reserve.
Health Republic received from CMS a combined $174.4 million in startup and solvency loans in 2012. In September 2014, the total amount of loans rose to $265 million. The insurer withdrew all but $487,000 from those loans. CMS' claim on those funds is subordinate to claims payments, the ordinary and necessary expenses the Health Republic incurred in carrying out its day-to-day activities, and "maintenance of required reserve funds," Vullo wrote in court papers.
Providers are prohibited from billing former Health Republic members for claims the insurer did not pay. Those members may be entitled to refunds if they paid premiums for December 2015 after the insurer stopped providing coverage.
Entities that contracted with the insurer must continue adhering to contracts during the liquidation proceeding, DFS said. Ronald Vance Jr., managing director of Alvarez & Marsal, is chief restructuring officer for Health Republic.
A hearing has been set by Justice Arthur Engoron for May 10 at 9:30 a.m. at New York State Supreme Court in Manhattan.