For software firm Tools4ever, signing with one of New York's start-up insurers in 2014 seemed like a good fit. Rates from nonprofit Health Republic of New York were $6,000 lower than those of competitors.
"It was a substantial amount of money that it was going to save our company," said Dean Wiech, president of the Long Island, New York-based firm whose experience was featured in a Health Republic television ad two years ago.
This fall, when it was time to renew, it was very a different story.
"We had received notice that they were going to increase our rates between 19 percent and 29 percent this year," Wiech said. "And then shortly after receiving that notification, we learned they were closing their doors."
It was an abrupt turnabout. Health Republic's low prices had made it the second-most popular insurer on New York state's health exchange, enlisting 200,000 members. But it was paying out more in medical costs than it took in. When federal officials set reimbursement to insurers for Obamacare plan losses well below expectations, it left the insurer deep in the red. Regulators forced Health Republic to shut down just weeks before the start of 2016 open enrollment.
The fact that reimbursements are only paying out about 12 percent of what was promised "is a major challenge, and it would be for any business," said Ceci Connolly, managing director of PwC's Health Research Institute.
An Immature Health Exchange Market
The reimbursement shortfall has impacted both established and new players, but it was a deadly blow for nearly half of the so-called co-ops such as Health Republic launched with billions in federal funds as part of an Obamacare program to foster competition on the exchanges.
"I think what we saw with the co-ops was the immaturity of that model and the anticipation that they could, quote-unquote, somehow hold the big health plans honest by pricing at a level that captured a lot of membership," said Mark Bertolini, chairman and CEO of Aetna during a conference call with analysts. "And we knew that that was going to be troublesome and unsustainable."
In New York state, Health Republic was one of three start-up insurers that launched with the debut of the Affordable Care Act exchanges in 2014. The other two insurers have also experienced growing pains, but both are preparing to expand as they begin their third ACA open enrollment season.