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Health Republic Closing its Doors

The co-operative, created following the inception of the Affordable Care Act, said the $20 million loss from the risk corridor program led to its decision.
October 16, 2015

Health Republic Insurance is going out of business and will no longer offer small group or individual plans on or off exchange in 2016.

When reached for comment, Dawn Bonder, president and CEO, described the situation as very sad, saying the federal government’s refusal to honor its risk corridor obligations led to a negative financial impact of $20 million. “This has placed us in a difficult financial position that could jeopardize our members and partners. As a result, we believe the most ethical step is for Health Republic to refrain from entering the market in 2016 and begin an orderly wind down of business.”

The federal government recently announced it would pay insurance companies only 12.6 percent of their risk corridor receivable for the 2014 plan year, which has created industry-wide concern about when, or if the 2015 risk corridor would be paid.

“This is a political outcome,” Bonder told The Lund Report. It happened after Congress refused to include the revenue neutral provision in the budget bill last November which meant that HHS could not fully pay the risk corridor payments and that inevitably led to the $20 million loss in 2014 and 2015. The co-operatives were expected to sustain themselves under a five-year plan with the government helping them through the hills and valleys, she said.

“It’s basically unfortunate because we are collateral damage to a broken system,” Bonder said. “This was an incredibly difficult decision for our executive management team to recommend to our board but we believe it was the only responsible thing in light of all the uncertainties going forward. Our capital is very limited by the statute that created us.”

Initially, the federal government gave the co-operative $60 million in loans that had been expected to be paid back over time. Bonder is determined to pay all claims and contractual obligations before Health Republic closes its doors and, if any revenue is left over, repay the feds.

All policies – both individual and small business – remain in effect until the end of the year. Currently Health Republic has about 14,000 members in both categories.

“We feel it’s the best thing for the consumers to start over with a new carrier next year,” Bonder added.

She suggests that all individual policy holders to shop for new plans when Open Enrollment begins Nov. 1, 2015.

Insurance Division statement on Health Republic

Health Republic Insurance Company has notified the Oregon Department of Consumer and Business Services, Insurance Division of its intent to withdraw from the individual and small group markets in 2016. Health Republic will be submitting to the division a plan to wind down all operations and to stop doing business effective Dec. 31, 2015.

“We will review Health Republic’s wind-down plan and work closely with Health Republic to ensure that individuals and businesses currently enrolled with Health Republic are protected,” said Oregon Insurance Commissioner Laura Cali.

To ensure that they continue to have health insurance after Dec. 31, 2015, all individuals enrolled with Health Republic should take immediate action to select a new plan when health insurance open enrollment begins on Nov. 1. Individuals can compare plans and enroll through, with the help of an agent, or directly with an insurance company. They also can access financial assistance to pay for premiums through if they qualify.

Businesses with small or large group coverage through Health Republic should immediately call their health insurance agent or company for help picking new health insurance.

Bonder Expected Profitability

The move comes despite assurances from Bonder just six weeks ago that everything was on track at Health Republic -- she expected to turn a profit in 2016, as her business plan had always forecasted.

In an earlier story, Bonder was asked about the financial sustainability of Health Republic after a Louisana co-op closed on the heels of the failure of one operating in Iowa and Nebraska.

Only one co-operative, in Maine, has yet to turn a profit.

“I find it puzzling that people are surprised that co-ops are not turning a profit,” Dawn Bonder, the chief executive officer of Health Republic, one of the two co-operatives in Oregon, told The Lund Report. “Business 101 tells us that startups that anticipate making any profit in the first and second years don’t have a realistic, sustainable business plan.”

She said the company should start turning a profit next year, in its third year of operation, as envisioned in its original business plan presented to the federal government at the time its loans were approved. The company received $10 million in startup loans, which come due in 2017 and a $50 million solvency loan, which acts like a line of credit, and comes due in 2027.

Congressional Action

A recent bipartisan push through Congress to strip the Affordable Care Act of provisions that would expand the small-business market also bode poorly for Health Republic. Bonder told The Lund Report in August that she was counting on the expansion of the market to bring her new employer clients with 50 to 100 employees, who would be required next year to purchase Affordable Care Act compliant plans from a community risk pool.

The legislation spiking this part of the ACA was advocated by America's Health Insurance Plans and the BlueCross BlueShield Association. The big insurers are currently allowed to design plans for employers in this group based on the risk of that specific employee pool, and can set higher rates based on health and gender. This allows them to cherry-pick which employers they want to cover and offer good plans only to those that are profitable.

The change would have evened out the risk pool for all small businesses in this group, and offered a fairer choice for employers with a surfeit of older employees or women. But it would have raised healthcare premiums for employers with an employee pool that was mostly young, healthy and male, allowing the insurance industry to set off alarm bells about "an expensive business mandate."

Both of Oregon's senators went along with the bill in a unanimous voice vote, and President Obama was left with little choice but to accept this first watering down of his landmark healthcare law.

In June, Bonder railed against the Insurance Division for pushing legislation that allows Regence BlueCross BlueShield and other big insurers to continue substandard grandfathered plans for the small business market beyond this year. Health Republic, since it was created at the inception of the Affordable Care Act, had never been able to offer such plans.

The twin moves by the Republican Congress, appear to be their first victories in destroying part of the Affordable Care Act.

The co-ops were conceived as a compromise for progressive Democrats vying for true universal healthcare through a single-payer system, or at least a public option health plan on the exchange for middle-class families. The concept was modeled after the Group Health Cooperative, which has served Washington and the Idaho panhandle since 1947.

Co-ops operate under strict rules: all profits must be reinvested to lower prices or improve quality for consumers, and these nonprofits, unlike traditional insurers, must have a governing board made up primarily of members. They have been compared to credit unions, operating in a world dominated by big banks.

Diane can be reached at [email protected]. Chris can be reached at [email protected]