NY State should have done more about Healthrepublic collapse

Found in the Times Union:

The Empire Center is out with a report contending that the state, specifically the Department of Financial Services, should have seen the impending collapse of the Health Republic insurance co-op long before they ordered it to close in September.

The closure has forced about 215,000 New Yorkers to scramble to find an alternate, and almost certainly more expensive, health insurance carrier.

To be sure, these co-ops, which were created as part of the Affordable Care Act, have been falling apart in a number of states and there is a debate as to whether they were simply unrealistic in their pricing or under-funded by Congress.

In their report authored by veteran journalist Bill Hammond, Empire Center argues the former — that their rates were too low to cover their claims and the state, intent on seeing the co-ops make it, saddled them with rates that were so low they couldn’t cover their cost.

There were other issues as well including the amount of reserves they had to keep on hand and a state policy of controlling premiums. The report contends that market forces and competition would have provided a better mechanism for setting sustainable rates.

Here are the details:

The collapse of Health Republic Insurance of New York, a non-profit insurance co-op established under Obamacare, can be blamed largely on “an apparent breakdown in state oversight,” concludes a report released today by the Empire Center. The report says the state Department of Financial Services (DFS) should loosen its regulatory control of insurance premiums and refocus on the financial soundness of insurance companies.
Written by longtime Capitol journalist Bill Hammond, the report marks the first independent post-mortem on Health Republic’s failure—which disrupted coverage for 215,000 customers, stuck hospitals and other health providers with hundreds of millions in unpaid claims, and left federal taxpayers with a quarter-billion dollars of uncollectible debt.

The necessity for Health Republic’s state-ordered shutdown “should have been no surprise” to the state Department of Financial Services, the report says, citing the company’s “steep operating losses, mounting debt, unanticipated costs and heavy reliance on a federal risk-management subsidy that failed to materialize.”

“Yet the department did not intervene to order an increase in Health Republic’s premiums, as other states did in similar situations,” the report adds. “To the contrary, DFS repeatedly cut the company’s premiums below what the insurer had requested, aggravating the co-op’s losses.”

The report questions whether the department’s regulatory judgment was “clouded by the political desirability of keeping health insurance prices artificially low in the short term.” There was, it says, “an inherent conflict between the department’s longstanding regulatory role—which is to assure that health plans are financially sound—and rate-setting authority granted by the Legislature in 2010.”

The law reinstituting the agency’s power of “prior approval” over premiums for individual and small-group health insurance policies “is having no clear impact on New York’s health insurance costs versus national averages,” the report says. “This suggests that consumers might be better off if DFS kept its entire regulatory focus on the financial health of insurance companies while leaving price-setting to market forces.”

The Empire Center is a non-partisan, non-profit independent think tank based in Albany