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Mar 1, 2016 4:23 PMPublication: The Southampton Press

Demise Of Health Republic Of New York Cost Local Hospitals Millions In Lost Payments

Heather Dunn-Kostura, of Springs, was covered by Health Republic of New York for her medical expenses until it abruptly shut down at the end of 2015. ALYSSA MELILLO
Mar 1, 2016 5:27 PM

At the request of U.S. Representative Lee Zeldin, the Federal Bureau of Investigation may launch a criminal investigation into last fall’s shutdown of Health Republic Insurance of New York, a nonprofit health insurance provider established through the federal Affordable Care Act.

Mr. Zeldin noted that about 200,000 people throughout the state were left without health insurance after the company folded, including 11,000 Suffolk County residents, and thousands on the South Fork alone.

Southampton Hospital and Peconic Bay Medical Center in Riverhead both suffered serious financial blows and collectively lost between $3 million and $4 million for services they provided to Health Republic members that were not reimbursed. One result is a temporary hiring freeze at Southampton Hospital.

Only days after Health Republic ceased operations on November 30, Mr. Zeldin called for the investigation in a letter to U.S. Attorney General Loretta Lynch, stating that the company may have filed false financial reports “to mask [its] financial woes.” He also suggested that Health Republic denied policy-holder benefits and sent out checks to health care providers even though its coffers were empty.

“If Health Republic officials knowingly sent out checks to health care providers without having the sufficient funds to cover those checks, swift and immediate action must be taken to hold these individuals accountable and to ensure this does not happen again,” Mr. Zeldin wrote in his December letter to Ms. Lynch. “In addition to investigating whether or not any criminal action took place, an investigation must also include ways in which the government can recover the funds lost during the undertaking.”

Ms. Lynch sent the congressman a written response dated February 17, which stated that the U.S. Department of Justice had forwarded his request to the FBI and that the bureau “will determine whether an investigation is warranted.”

The shutdown of Health Republic affected thousands of individuals on the South Fork. According to Southampton Hospital spokesperson Marsha Kenny, about 6,500 patients there utilized the company in 2015, and the hospital was not reimbursed for $1.7 million in services between the main facility and its various Meeting House Lane Medical Practice offices.

Southampton Hospital President and CEO Robert S. Chaloner estimates, however, that the loss will end up climbing to a little more than $2 million, although he does not anticipate that it will create an overall budget deficit for the most recent fiscal year. But because revenues at the hospital are not as high in the winter as in the summer, the reimbursement loss has forced officials to implement a hiring freeze for the time being.

“Those are dollars that we could’ve used to invest in new programs. It’s forced us this winter to slow down payment of our bills,” Mr. Chaloner said. “It was a surprise. The plan was percolating along well, it seemed to be getting people to sign up.”

Peconic Bay Medical Center, according to Mr. Zeldin, is out about $1.5 million, although a spokesperson for the hospital did not respond to a request for comment.

In an interview with The Press this week, Mr. Zeldin said that even when Health Republic first began enrolling clients in January 2014, it “was operating off of a business model that had a 100-percent chance of failure.”

Health Republic was a nonprofit consumer-operated and -oriented plan program, or CO-OP, sponsored by Freelancers Union, another nonprofit organization that supports independent workers statewide. Health Republic of New York’s umbrella company, Health Republic Insurance, was created under the Affordable Care Act, which Mr. Zeldin voted in favor of repealing last month.

The company operated three CO-OPs in New York, New Jersey and Oregon, but the New York State Department of Financial Services forced the New York CO-OP to shut down at the end of November after realizing how severe its financial problems were.

Attempts to reach out to Health Republic Insurance for comment were not successful.

Debra Friedman, CEO of Health Republic Insurance of New York, had vaguely explained in an undated letter to policyholders on the company’s website that the decision to shut down came “after coordinating with state and federal regulators.”

“While we are deeply disappointed with this outcome, we believe it is in the best interests of our members. Starting a new insurance company is a daunting task in any environment, but the systemic challenges placed on us by the structure of the CO-OP program were simply too difficult to overcome,” Ms. Friedman wrote.

In October, the CEO of Health Republic of Oregon, Dawn Bonder, had announced that Oregon’s CO-OP would fold in 2016 as well.

Mr. Zeldin said he believes the New York CO-OP ultimately failed because of how it operated: It rented plans from MagnaCare, a regional health care network that partners with insurance providers in New York and New Jersey, and offered premiums at rates that were, on average, about one-third lower than its competitors’.

“If you were to go into business and decide that you want to open up a grocery store across the street from Stop & Shop, and you’re trying to decide where to buy your products from, and you choose to buy the products from the Stop & Shop [and sell them at a lower price] … you’ll be able to sell your product, but you’re operating at a loss that creates a 100-percent chance of failure for your model,” Mr. Zeldin said.

Anthony Cardona, president of Cardona & Company, a Water Mill-based life and health insurance brokerage, agreed, adding that because Health Republic was a nonprofit, it is especially unusual that it failed for any reason other than underpriced premiums. Medical loss ratio, a financial measurement of the Affordable Care Act, allows insurance companies to keep as much as 15 percent of their users’ premiums—something Health Republic, as a nonprofit, didn’t need to rely on.

“Whatever they were taking in obviously wasn’t enough,” Mr. Cardona said. “A company can’t just come in and go, ‘You know what, we’re going to be 50 percent cheaper than the rest of the market.’ In theory, that extra 15 percent wasn’t as important to them, because they weren’t trying to make a profit,” he added. “At the end of the day, it just seems like they didn’t take in enough premiums.”

Cardona & Company also lost out on two months’ worth of commissions it was supposed to receive for enrolling clients in Health Republic, Mr. Cardona said. “They didn’t even say anything or anything like that—they just stopped paying,” he said. “It’s been kind of weird. They went out and then kind of vanished. I’ve been at this for a long time, and I never experienced anything like that.”

For individuals, the shutdown created more of an inconvenience than anything, as policy holders had to scramble to find new carriers.

Springs resident Heather Dunn-Kostura and her husband, Richard, had signed up for Health Republic in June 2015 and were paying a monthly premium of just $515 for the both of them. Aside from paying for their prescriptions, they were planning to use the coverage for Mr. Kostura’s shoulder surgery, which was scheduled for just after Thanksgiving, but they had to put the operation on hold until they found a new carrier.

“It complicated things. It was going to be complicated no matter what, but his arm will be out of commission for three months, so [doing the surgery in the] winter would have been best,” Ms. Dunn-Kostura said.

Although they are now signed up for Empire Blue Cross Blue Shield and pay a monthly premium of about $560, the costs of their co-pays and prescriptions have also increased, and they have to find a cardiologist for Mr. Kostura to see before he can schedule another surgery date.

“After a while, it does all add up,” Ms. Dunn-Kostura said. “Everything’s a little bit more expensive. It is what it is.

“When [Health Republic] fell apart, I was more sad than anything else. I wasn’t really surprised—there are a lot of people who don’t want the Affordable Care Act to survive,” she said. “I think the Affordable Care Act is a good thing. I didn’t have health insurance for 10 years. I own a small business. It’s hard.”

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Do we have a new zip code for Flanders yet Congressman? or this work too local for you?
By watchdog1 (543), Southampton on Mar 1, 16 5:18 PM
I'm interested in that Zip Code issue as well, though I rank that well below the need for improved Law Enforcement in the area.

But what I REALLY want to know is why, if she just lost her medical coverage, Heather Dunn-Kostura is all smiles in all those silly photos?
By Frank Wheeler (1826), Northampton on Mar 2, 16 12:03 AM
1 member liked this comment
Maybe because she signed up with BCBS to replace her family's coverage? Remember this would likely have been much more expensive or maybe impossible for her prior to the ACA, due to pre-existing conditions. Imagine how much money all of us would save if the insurance companies were eliminated. They are simply a parasite on our healthcare system and are incentivized to keep all costs as high as possible (including drug costs) since they get a percentage of the dollars that pass through the system. ...more
By Arnold Timer (327), Sag Harbor on Mar 3, 16 7:59 AM
How about Mr. Zeldin engaging in something far more useful?

Like investigating those who designed the ACA to fail?

Maybe it was some of the Republicans at the Heritage Foundation who first called for an individual mandate back in 1989...
By Mr. Z (11847), North Sea on Mar 1, 16 6:54 PM
So the ACA is the GOP's fault even though none of them voted for it? Obamacare is a disaster and as predicted is costing American tax payers far more than originally predicted.
By razza5350 (1911), East Hampton on Mar 2, 16 6:15 AM
Razza - The Republicans made a political decision to not participate in the process creating the ACA and therefore the Democrats were forced to prostitute themselves to Joe Lieberman, the senator to the insurance companies. Had the Republicans actually made an effort to be part of the process we might have gotten a much better bill. Still, the ACA is better than any of the Republican alternatives offered to date.

Note: In a poll conducted by the Commonwealth Fund, when asked: "Overall, ...more
By bird (829), Sag Harbor on Mar 2, 16 9:51 AM
"We need to pass the bill so we can find out what's in it" pelosi. There was no process. Even the democrats didn't know what they were signing. The ACA was written by lawyers and lobbyists for the benefit of the poor, big pharma and insurance companies. It was nothing more than a big money grab on the backs of the hard working middle class. Wake up and stop drinking the kool aid!
By razza5350 (1911), East Hampton on Mar 2, 16 1:19 PM
1 member liked this comment
Actually razza, you've just agreed with what I posted. Had the repubs participated we might have gotten a better Bill.
By bird (829), Sag Harbor on Mar 3, 16 6:07 PM
Lets be "Realistic". A non-profit healthcare operation operating under the Affordable Care Act- providing unlimited health insurance, no pre-existing condition exclusions, care with "affordable" premiums, coverage for family member past 18 yrs old, was doomed from the get go. Who in their right mind thought this could work? Thats why they all failed.
By realistic (472), westhampton on Mar 1, 16 7:25 PM
1 member liked this comment
Isn't it ironic that a Congressman from the political party that fought tooth and nail against the monstrosity that is Obamacare, is now leading the fight to try and fix the damage caused by the legislation.

To all of you who lost your health care insurance from this unfortunate event, thank a Democrat. They voted Obamacare in as the law of the land without a single supporting vote from the Republicans.
By BillWillConn3 (180), Southampton on Mar 1, 16 8:52 PM
3 members liked this comment
Note: In a poll conducted by the Commonwealth Fund, when asked: "Overall, how satisfied are you with this new health insurance?" - 74 percent of the Republicans who had signed up for health coverage at least in part due to the ACA said they were satisfied -- specifically, 30 percent somewhat satisfied and 44 percent very satisfied.
By bird (829), Sag Harbor on Mar 2, 16 9:52 AM
1 member liked this comment
go talk to a business owner or your average self employed working person and tell me what you find? The only people who are satisfied are the poor. Why shouldn't they be everyone else is subsidizing their premiums.
By razza5350 (1911), East Hampton on Mar 3, 16 9:56 AM
a hearty **** you to Barak Hussein Obama and everyone who voted for Him! I When Obamacare was rammed through I lost my catastrophic policy, combined with a fully funded HSA (health savings account), a policy that was just fine for our needs. Next the very definition of what constitutes a business was changed, a Mom and Pop is not able to purchase health insurance as part of a business alliance anymore so we were forced onto the individual marketplace where the only remotely affordable option accepted ...more
By bigfresh (4666), north sea on Mar 1, 16 9:56 PM
Thank you democrats for creating this massive piece of garbage. It's laughable that people in third world countries have better access and cheaper costs when it comes to healthcare. Maybe instead of getting the government involved and ballooning the costs to insane levels, we should let the free market do its job and fix the insanity that is the medical industry
By (Y)eti (5), Southampton on Mar 2, 16 10:16 AM
2 members liked this comment
Time for single payer health care
Nixon wanted it, you know. He got side tracked by watergate. In fact, some conspiracy theorists note that Nixon was taken down by a conservative, Mark Felt, working with a military intelligence officer Bob Woodward, and believe it was Nixon's move toward instituting national health care which caused the right to take him down. Interesting theory. Insurance companies have made trillions since that time.
By btdt (449), water mill on Mar 3, 16 2:08 PM
I had Health Republic insurance, only because of Obama. I paid this organization my earnings in return for a service. Because Obama is incompetent, the process failed. My care providers got stiffed. Obama basically stole my money. Clinton will do the same.
By SHPredatorDept (72), Southampton on Mar 3, 16 2:17 PM
1 member liked this comment
It's called Obama Care, and some of you blame the Republican s? Hilarious
By chief1 (2800), southampton on Mar 3, 16 6:49 PM
" If you like your policy you ca keep your policy, if your doctor you ca keep your doctor". Barak Hussein Obsma
By bigfresh (4666), north sea on Mar 7, 16 7:25 PM