Health Republic: What went wrong and why?

Crain’s New York recently published a terrific article laying out the reasons how and why Health Republic turned into such a catastrophic failure.

From the article:

“On Sept. 25, 2015, Health Republic was ordered to shut down by the same state and federal agencies that had given the insurer their regulatory blessings just two years earlier. In 20 months, from January 2014 through August 2015—when it became clear the insurer couldn’t survive—Health Republic had accumulated tens of millions of dollars in losses. The company was ordered to close its doors effective Nov. 30, leaving 209,000 enrollees to scramble for new coverage.

A three-month investigation by Crain’s New York Business shows that, from its conception in 2012, Health Republic was on unsteady ground. Crain’s found that management deliberately set low premium rates as a marketing ploy to attract customers. Regulators approved those rates but then wouldn’t let the company raise them after it became clear that the prices jeopardized the company’s solvency. 

To put it more bluntly; Health Republic’s failure was the result of negligent leadership and incompetent government oversight.

Again, from the article:

“By several accounts, DFS did not monitor Health Republic closely, aside from handling initial consumer complaints. It wasn’t until early 2015 that DFS began demanding monthly financial reports from Health Republic instead of only quarterly and year-end financial statements. By then, the company realized it had lost $77.5 million in 2014, an amount it had still hoped would be covered by the federal backstop. Meanwhile, Health Republic’s executives tried to reduce losses. They stopped selling policies in several upstate counties where claims were particularly high. The company also tried to interact directly with providers to manage patient care that generated expensive claims but was blocked by the restrictive contracts that had been signed with MagnaCare.”

Even now, months after the failure, the fallout continues. The real question is: What will New York State lawmakers and policy officials due to ensure that the regulators accomplish their primary mission of maintaining carrier solvency so this doesn’t happen again?