The old cliché “there is no such thing as a free lunch” sadly rang true when it was announced that Health Republic of New York, one of the most popular insurance choices on NY’s health exchange, was being forced to shut down due to substantial financial losses. The carrier first began to enroll members in 2014 and quickly obtained the largest share of new business under the exchange with more than 200,000 customers, or approximately 20% of the exchange enrollees, and 35% of small businesses.

Health Republic was formed as a “Consumer Operated and Oriented Plan” or co-op under Obamacare. Because it was a not-for-profit, it was envisioned that it would be able to offer health insurance over the exchange at cheaper rates. Indeed, with the help of approximately $256 million in federal loans, it offered plans that were less expensive than other companies providing insurance on the exchange. The theory was that by having these co-ops offer cheaper insurance, competition would be spurred and overall health insurance premium increases would be held in check.

In total, the federal government has provided more than $2 billion in loans to create 23 co-ops around the country. To date, after two years of Obamacare, nine co-ops including Health Republic have failed. It is expected that more failures are to come. Furthermore, it is unlikely that the federal government will be able to recoup any of the money that it loaned to these companies. Health Republic alone lost $130 million during its first 18 months of operation.

The reasons why Health Republic and other co-ops have failed need to be fully investigated. However, it seems fairly clear that one reason is that their premiums were too low. This issue illustrates a basic problem with Obamacare. In order for health insurance to work, risk needs to be spread across a large population. In order to attract a large population, premiums need to be priced competitively. Health Republic was able to attract a large number of customers, but their premiums were not priced appropriately in order to remain solvent. If they raised their premiums, they wouldn’t have been able to attract as many customers and wouldn’t be able to add competition on the exchange—the whole purpose of allowing these co-ops to form in the first place.

The overriding concern about the failure of these co-ops is that they are a harbinger of things to come. Obamacare has done little to reduce healthcare costs. Accordingly, costs will continue to rise. The higher the premiums, the less likely people will purchase insurance on the exchange—especially if they can always get insurance at a later date if they so need or wish. The government will then have to increase subsidies. If not, they will face a situation where rates rise because the pool of insured is decreasing, causing what many have called a death spiral.

Nevertheless, I feel for Health Republic’s customers and the major inconvenience they face having to switch to new carriers and likely having to pay higher premiums. If you or someone you know is affected by the sudden closure and have not been offered insurance by another carrier, please contact the New York State Health Department helpline at 1-855-355-5777. All others who wish to shop for insurance are encouraged to do so by December 15 or customers will automatically be reenrolled in their current plan. If you have any questions or comments or if you would like to be added to my mailing list or receive my newsletter, please contact my office by mail at 200 North Second Street, Fulton, New York 13069, by e-mail at barclaw@assembly.state.ny.us, or by calling (315) 598-5185.