In December 2015, we wrote about the many failed health insurance co-ops created under the Affordable Care Act (“ACA”), and the impact of those failures on providers and other creditors, consumers, and taxpayers. At that time, co-ops across the country had more than one million enrollees. As of January 2021, there were roughly 120,000 enrollees in three remaining co-op plans. Nonprofit co-op insurers were intended to increase competition and provide less expensive coverage to consumers. However, low prices, lack of adequate government funding, restrictions on the use of federal loans for marketing, and low risk corridor payments from the Centers for Medicare & Medicaid Services created financial challenges for these insurance plans.
Health Republic Insurance Company of New York (“Health Republic”) was the largest co-op established under the ACA. New York State regulators ordered Health Republic shut down in September 2015 because of its poor financial condition. In the five-plus years of Health Republic’s liquidation proceedings, its outside legal advisors and other professionals have been paid approximately $8 million, while no money has been distributed to providers or policy holders. Unlike certain other states that maintain health insurance guarantee funds to protect consumers and providers in the event of a health insurer’s insolvency, New York State had no such guaranty fund to protect Health Republic’s creditors.
The ACA’s risk corridor program was designed to limit co-op plans’ profits and losses during the first three years of operations by collecting money from plans in which the costs were lower than the premiums received and conversely paying those plans in which costs exceeded the premiums received. In practice, plans’ losses exceeded their profits and the federal government paid only a small percentage of the risk corridor payments owing to the plans. Many lawsuits were filed by plans seeking to recover more than $12 billion from the government. Following protracted litigation, the United States Supreme Court ruled on April 27, 2020 that the government was obligated to make full risk corridor payments.
According to a press release dated May 3, 2021, New York’s Superintendent of Financial Services announced a settlement with the federal government by which Health Republic will recover more than $220 million from the United States. This recovery will allow Health Republic’s Liquidator “to pay all policyholder level claims in full, including many New York hospital systems and other health care providers” as well as pay New York State and local government claims and a portion of general creditors’ claims. Fortunately, the favorable outcome of the litigation over risk corridor payments will provide the means for creditor recoveries in this prolonged liquidation proceeding.