Yesterday afternoon, state regulators at the New Jersey Department of Banking and Insurance (“NJDOBI”) announced that Health Republic Insurance of New Jersey (“Health Republic”) will be placed into rehabilitation pending approval of the New Jersey Superior Court, Chancery Division in Mercer County. If approved by the court, the rehabilitation will enable the Department to preserve the assets of the carrier so that consumers continue to receive the care to which they are entitled and medical providers are paid.
Health Republic is New Jersey’s “Consumer Operated and Oriented Plan,” or “CO-OP. ” Health Republic, like other CO-OPs, was formed consistent with provisions embodied in the Patient Protection and Affordable Care Act of 2011 (“ACA”). The ACA promised funding and financing for new health plans focused on the individual and small group health insurance markets; however, a significant portion of the funding promised by Congress (relating to risk corridor payments) was never appropriated.
Health Republic is one of thirty-five CO-OPs to be formed in various states across the country under Section 1332 of the ACA, and one of three (3) state-specific CO-OP plans to bear the “Health Republic” trade name (all three are entirely separate plans). As of last week, Health Republic (of New Jersey) was only one of seven (7) CO-OPs which remained outside of insurance delinquency proceedings. As of today, only six (6) CO-OPs remain. Health Republic of New York was placed into liquidation by the New York Department of Financial Services in April of this year, and Health Republic of Oregon shut down as of November 30 of last year.
Health Republic (of New Jersey) has faced similar financial difficulties to those experienced by CO-OPs formed in other states. Under Section 1343 of the ACA, all qualified health plans writing individual health insurance plans on federal and state exchange (including CO-Ops) are subject to “Risk Adjustment” obligations. In short, when individual health plans disproportionately attract chronically ill or otherwise more costly subscribers, risk adjustment requires plans which attract a disproportionately healthy subscriber base to divert some premium to those plans which have incurred greater costs. Overall, individual health plan subscribers in recent years have proven far more costly to health insurers than insurers anticipated. As a result, Health Republic owes $46.3 million in risk adjustment payments to other health plans writing in the New Jersey individual marketplace.
Another significant financial pressure on all CO-OPs, and one which Health Republic had withstood until recently, was created by the failure of the federal government to make substantial “risk corridor” payments. Under Section 1342 of the ACA, CO-OPs, like all qualified health plans, were supposed to be financially backstopped by the federal government if operating losses from claim expenses developed greater than anticipated by the health plan. In theory, under regulations adopted by the U.S. Department of Health and Human Services (“DHHS”), as much as 80% of a qualified health plan’s losses would be offset by federal funding through “risk corridor” payments made to the health plan. For the operating year 2014 alone, qualified health plans were due to receive $2.9 billion in risk corridor payments; however, DHHS was only able to deliver $362 million because Congress failed to appropriate funds for such payments.
NJDOBI’s proposed rehabilitation plan for Health Republic will provide for the company to continue paying claims through the end of this plan year (December 31, 2016). Health Republic’s approximately 26,000 individual health plan subscribers (whose plans all expire at year end) will need to locate other health coverage options during this year’s coming annual enrollment period, beginning November 1st. Policies issued to Small employer groups by Health Republic (entailing approximately 9,000 subscribers) will also end on December 31st, regardless of whether their plan year might otherwise extend into 2017.
Under New Jersey law (as with the laws of most states), an insurer such as Health Republic can be placed under the control of the state’s insurance commissioner if it becomes financially impaired. The Commissioner’s petition, which in this case has been consented to by Health Republic, must be approved by a state court of competent jurisdiction. Assuming the court approves, the Commissioner, in his capacity as rehabilitator of the company in rehabilitation, will appoint staff to work with Health Republic’s staff to wind down Health Republic’s business, which should effectively conclude as all remaining 2016 claim obligations are paid in early 2017. According to its Press Release, NJDOBI appears hopeful that Health Republic can be returned to financial health and further that Rehabilitation will permit the Department to stabilize the company while measures to strengthen its financial condition can be pursued, in anticipation of a potential return to the marketplace in 2018.