The demise of Health Republic last month caught brokers and doctors by surprise, although industry insiders said impediments to success were built into the way the federally backed health insurer was set up.
On Sept. 25, the state Department of Financial Services announced that Health Republic Insurance of New York would no longer be writing policies and would begin winding down its business.
Existing individual and family Health Republic insurance policies remain in effect through Dec. 31, the state said. Its small group plans for businesses -- which, unlike individual plans, do not all have calendar-year policy terms -- also remain in effect. Enrollment for next year begins Nov. 1.
Health Republic was one of 23 Consumer Operated and Oriented Plans (CO-OPs) created under the federal Affordable Care Act to increase competition and offer low-cost health care. It is the fourth to go out of business nationwide.
Kelly Crowe, chief executive of the trade group National Alliance of State Health CO-OPs, said in a statement that the CO-OPs have been hamstrung "from practically their inception."
Although initially they were supposed to get $6 billion in start-up funding, Congress eventually whittled that down to $2.4 billion.
What's more, the rules governing how a CO-OP could get outside capital "have not been forthcoming" until very recently, making it difficult to raise money from outside investors, said Dr. Martin Hickey, chairman of the NASHCO board of directors and chief executive of the CO-OP New Mexico Health Connections.
Michael J. Fagan, Health Republic's chief government relations and communications officer, agreed. "All new start-up health plans require access to capital as they grow and reach sustainability. Unfortunately, the rules around the CO-OP program thwarted Health Republic's and other CO-OPs' efforts to access sufficient capital to reach our fullest potential and long-term success," he said in a statement.
And programs that were intended to offset the unpredictability of risk and adverse selection for all insurers entering the marketplace have hit many CO-OPs and other new insurers hard, while simultaneously bolstering many large, established insurers, they said.
Health Republic has been popular. Statewide, it has the second highest percentage of individual and family enrollees on the exchange -- 19 percent -- and the highest percentage of the state's Small Business Health Options exchange -- 35 percent. Through April 15 of last year, it was the third most popular plan on Long Island for individuals and families, and the most popular on the small business exchange.
"They had a good product and handled claims pretty reasonably," said Kenneth J. Harasym Sr., president of the Economic Planning Health Corporation, an insurance broker in Miller Place. He said the closing would affect about 600 of his policies, or about 2,000 people, most of them in Suffolk. His own family took the insurance.
But Health Republic was struggling financially and had already withdrawn from the Albany, Hudson Valley and Utica/Watertown market for next year. So far this year it has reported a $53 million loss, on top of $77.5 million last year. It also owes the federal government $265 million in loans.
The announcement left Stony Brook University Hospital scrambling. Health Republic was the only health plan on the exchange the hospital accepted.
Stony Brook chief executive Dr. Reuven Pasternak said in a statement the hospital is "actively engaging other healthcare exchange providers."
Lynn Kay Winters, practice administrator for Eastern Long Island Hematology/Oncology in Riverhead and Southampton, called the closing "a special cruelty" for patients already burdened by cancer and by the usual complexities of the health care system. She said she also worries doctors will "end up holding the bag" for expensive chemotherapy drugs.