The federal government created consumer-governed health insurers like Health Republic Insurance of New Jersey under the Affordable Care Act to increase competition. But they had a challenging first year. That’s raised concerns at a watchdog agency — as well as a key question: are Consumer Operated and Oriented Plans (CO-OPs) viable?
A Health Republic executive has no problem answering in the affirmative, indicating the report is out of date and the company has had a great year.
Health Republic and most of the other 23 CO-OPs missed their revenue and enrollment projections for 2014, according to a report by the Office of the Inspector General for the U.S. Department of Health and Human Services. That performance has raised eyebrows — and some alarm — human services.
But a Health Republic executive said the company has had a “phenomenal” year in 2015, and isn’t concerned about its ability to repay federal loans.
The CO-OPs were launched with federal funds under the ACA to serve as alternatives to traditional health insurers and increase competition.
The CO-OPs were included in the ACA as alternative after an earlier proposal, known as the “public option,” was rejected by Congress. Under the public option, the government would have directly provided insurance to individuals.
In 2014 — its first year of operation — Health Republic enrolled 4,254 people, only 24 percent of the company’s goal of 17,984. The company also lost $16.5 million in 2014.
Most of Health Republic’s business is through the federal insurance marketplace launched under the ACA on January 1, 2014. The company also sells individual insurance plans directly to those who aren’t eligible for federal income-tax credits to subsidize their marketplace insurance.
Health Republic turned in much better numbers in its second enrollment period earlier this year. Through March 31, the company insured 38,105 people through marketplace plans and 5,860 through plans directly sold to consumers.
The company was able to increase its enrollment total by 933 percent through the one strategy that consistently draws insurance buyers — lower prices. While Health Republic offered some of the more expensive plans in 2014, it lowered premiums in 2015 and drew more consumers.
But while the company is having a good year, the federal report points out some of the risks to the federal government if it and other CO-OPs aren’t able to consistently offer low premiums in the highly competitive individual insurance marketplace. The Office of the Inspector General found that the U.S. Centers for Medicare and Medicaid Services (CMS) must have a firm grasp on which CO-OPs are at risk of being unable to pay off the loans that allowed them to launch.
One CO-OP, which operated in Iowa and Nebraska, was liquidated in March after the Iowa insurance commissioner took it over due to its poor financial position. In addition, the Tennessee CO-OP froze enrollment due to significant losses and concerns about how it was going to meet unexpected costs.
The federal government provided a total of $2 billion in loans to CO-OPs, with Health Republic Insurance of New Jersey receiving $107 million.
The report calls for CMS to work with state insurance regulators to identify and correct underperforming CO-OPs; provide guidance or establish criteria to determine when a CO-OP is no longer viable; and pursue remedies to recover funds from terminated CO-OPs.
CMS Acting Administrator Andrew M. Slavitt wrote in his response to the report that the agency concurred with the recommendations. He said that CMS has taken a series of steps to ensure that the CO-OPs comply with the terms of the loan program, including external audits, site visits, and additional financial reporting.
Health Republic Chief Marketing Officer Cynthia Jay said the report didn’t reflect what’s happened this year.
“It’s common for most new start-up companies to lose money in the first year of operations,” Jay wrote in an email. “Many insurance companies across the country, not just the CO-OPs, missed their targets or had unexpected results.”
Jay noted that all insurers had more information after the marketplace’s first year to plan their business strategies and “make necessary course corrections.”
Jay said Health Republic’s enrollment has passed 50,000 and the company has “established our brand in the New Jersey marketplace, far surpassing our original enrollment projections.“
While Jay didn’t provide more information about the company’s finances, she said that the added enrollment affected its income and Health Republic is looking to build further.
“We are not concerned about our ability to repay the ACA loan considering our current thoughtful growth and consequently, our financial stability,” she said. “Every CO-OP’s experience in every state is different and has unique circumstances.”