Insurance Company Folds, Leaving Woe in Its Wake

The Nov. 30 shutdown of Health Republic Insurance of New York, a nonprofit cooperative established in connection with the Affordable Care Act, left policyholders scrambling to find new coverage and health care providers short millions of dollars. And it spurred an investigation into its practices and calls for legislation to protect providers and consumers.

 On Monday, State Assemblyman Fred W. Thiele Jr. announced that he had co-sponsored a bill that would do exactly that by enabling policyholders of a bankrupt insurer to continue receiving care from their own doctors and hospitals and creating a fund to reimburse providers for uncompensated care in the event of a health insurance company’s insolvency or failure.

Because of the low rates Health Republic offered, it was one of the most popular insurance options in the health care exchange established under the Affordable Care Act. But despite $265 million in federal loans, Health Republic’s business model proved unsustainable: It lost more than $77 million in 2014 and more than $52 million in the first half of last year. In September, believing the cooperative was heading for insolvency, state authorities ordered it to wind down and stop writing new policies.

Health Republic had more than 200,000 customers, including more than 40,000 in Suffolk County. Statewide, losses to health care providers may be as high as $185 million, said Robert Chaloner, the president and chief executive officer of Southampton Hospital, with much of that concentrated on Long Island and in New York City.

“It happened very, very quickly,” Mr. Chaloner said. “We started hearing rumors in September. By the end of October, we heard it was going out.” Consequently, the hospital, which was required to continue to see patients covered by Health Republic through November, has incurred approximately $2 million in losses, he said.

The Health Insurance Consumer Protection Bill Mr. Thiele co-sponsored follows Representative Lee Zeldin’s move to investigate Health Republic’s collapse. In December, Mr. Zeldin, who represents the First Congressional District, called on Attorney General Loretta Lynch to open a criminal investigation into multiple aspects of Health Republic, including its creation, operation, and failure.

In a Dec. 7 letter to Ms. Lynch, the congressman alleged that Health Republic may have filed false financial reports, improperly denied benefits to policyholders, and knowingly sent checks to providers with insufficient funds to cover them. The Department of Justice referred his request to the Federal Bureau of Investigation last month.

Despite the relatively small percentage of patient revenues lost to Health Republic’s failure, which Mr. Chaloner estimated at 2 percent, “$2 million is still $2 million,” with the loss coming not just on very short notice but also during a particularly inopportune period. “We, like most businesses here, are seasonal. In the winter months we have to tighten our belts anyway. To suddenly learn about $2 million was tough.” The hospital had no choice but to implement a freeze on both capital expenses and hiring, he said.

For Rachel Lys, a physical therapist who owns East Hampton Physical Therapy, a private clinic in Montauk, the loss will be harder to absorb. “We were told by Health Republic that they were going under in December,” Dr. Lys said yesterday, and she continued to treat patients insured by the cooperative, which she said accounted for 30 percent of her clientele.

But Health Republic stopped making payments on Nov. 4, well before termination of its policies, she said. “I treated hundreds of patients for free for 30 days,” she said, and consequently lost approximately $20,000, “a large sum for a little person.”

On the consumer side, Health Republic’s failure resulted in “mass pandemonium on Long Island,” Anthony Cardona of Cardona and Company, an insurance broker in Water Mill, said. “It really put everyone in a tough spot.” For him, the cooperative’s abrupt departure meant that “for four to six weeks we were working around the clock to get people onto other plans. No one was necessarily happy because all plans were 35 percent higher. It didn’t leave people with a lot of options.”

“Health Republic was one of the last reasonably priced plans,” Mr. Chaloner said, “which is probably why they got into trouble. But it’s hard for year-round folks here to find affordable insurance.”

The state legislation, co-sponsored by Richard Gottfried, chairman of the Assembly’s health committee, would prohibit insurers from passing on assessments to policyholders. The fund would be financed by a one-time, temporary assessment on existing health insurers. New York, according to Mr. Thiele, is the only state in the country that does not have a system to protect health care providers and health insurance customers.

A guaranteed fund for health care providers “certainly would help,” Mr. Chaloner said, citing the failure of MDNY Healthcare, which the State Supreme Court ordered dissolved in 2008. “I absolutely hope Mr. Thiele and his colleagues are successful.”

There is, however, a downside to such a fund, said George Yates of the Dayton, Ritz, and Osborne insurance brokerage in East Hampton. “Insolvency funds add to the cost everybody else is paying,” he said, “because obviously somebody’s got to pay for it. If you do an insolvency fund, you would think solvent insurance carriers are going to have to raise their rates — somebody’s got to pay.”

Mr. Cardona agreed. “Ultimately, it’s not a horrible idea,” he said. “It’s insurance for insurance. But also, people’s premiums will have to go up.”

Southampton Hospital and other health care providers may recover at least some of their losses, Mr. Chaloner said. The Greater New York Hospital Association has been consulting with the state but firm plans have yet to materialize.

“The bigger guys,” Dr. Lys said, “have a chance to recover some of it. But people like me don’t have the likelihood of recouping. It’s such a deceitful practice. If any of us took out a credit card and never had an intention of paying the bill, we’d never get away with it. They insured these patients so they could take in money, but knew they’d never have the means” to fulfill their obligations.

Mr. Zeldin has voted with his colleagues in the Republican majority in Congress to repeal the Affordable Care Act. While the failure of a not-for-profit cooperative established under it “doesn’t speak highly of it,” Mr. Cardona said, “there are definitely pros and cons. It was able to get coverage for people who otherwise wouldn’t have been able to. But on the other side, our country spends too much on health care and not enough on health insurance premiums. We spend so much on health care, premiums have to be a little more than that. It’s simple business.”

Mr. Chaloner argued, however, that the failure of Health Republic was not an indication of the Affordable Care Act’s failure. “I think it’s positive movement forward,” he said. “We had a lot of people uninsured. That was certainly untenable.” Although he agreed with Mr. Cardona that the federal act has negative as well as positive attributes, he said, “I would hope the government keeps tweaking it and working out some of these problems. By no means should the current law be viewed as a finished piece of work.”