Three health insurers are selling policies on New Jersey’s marketplace under the Affordable Care Act, also known as Obamacare – and only one of them, Health Republic, plans to eventually be run by its members, with enrollees occupying a majority of the board seats, and with profits being put back into the company to either improve coverage or lower premiums.
Health Republic is one of 23 health-insurance cooperatives established across the country with start-up loans from the federal government. Unlike other insurers, a cooperative is governed by its members and reinvests surplus revenues in more services or cheaper premiums rather than seeking to make a profit.
It is making a point of targeting potential customers in urban areas, conducting recruitment campaigns aimed at commuters, and focusing on New Jersey residents who earn too much to qualify for Medicaid but are eligible for subsidies to help pay for coverage.
The two other insurers selling coverage through New Jersey’s federal health exchange are AmeriHealth and Horizon Blue Cross Blue Shield.
As they seek to establish a beachhead in the insurance market, executives at Health Republic admit enrollment has so far come in below expectations, due in part to the glitchy launch last year of the federal website Healthcare.gov.
The cooperative has not released enrollment figures, but CEO James Martin said he now hopes to reach 20,000 members by early in 2015, later than previously projected.
Health Republic has also had to navigate restrictions created by a Congress that was ambivalent about the cooperative concept, and the organization encountered some unanticipated hurdles as it crafted and began selling its health plans.
But Martin said he expects business to pick up as the Newark-based insurer focuses on enrolling self-employed workers, the uninsured and employees at small businesses who have been overlooked by other insurance companies. He also said potential customers, both on the individual exchange and in the small-business market, are attracted by Health Republic’s mandated mission of improving members’ health rather than on making a profit.
“We have a clause that was included in our federal government loan that was a mandate to innovate,” Martin said. “Not just to fund the startup of an insurance company, but to figure out other ways to improve the healthcare of those you’re insuring. So that’s part of what keeps us motivated to be optimistic about the future.”
Health Republic organizations in New Jersey, New York and Oregon were started with loan money applied for by the Freelancers Union of New York. The organizations maintain contacts but are independent from each other, Martin said.
Health Republic of New Jersey received a $107 million federal loan.
The cooperatives were included in the ACA to ensure competition and a broader range of insurance plans after a proposal for government-run public option insurer faced opposition. A number of health insurance cooperatives opened around the United States in the 1930s and 1940s, and two large cooperatives have operated in Minnesota and Washington for decades.
But opposition from congressional Republicans and some Democrats led to a number of restrictions on the new entities sponsored by the ACA.
The money was given out as loans rather than grants, and the initial funding of $6 billion wasto about $2 billion, curtailing efforts to create more co-ops in other states.
In addition, the co-ops are allowed to sell only one-third of their policies in the lucrative large-employer market; they were given a special 501(c)29 nonprofit status that makes receiving grants and donations more difficult; and they are barred from using their federal loan money for marketing purposes, despite having entered a highly competitive industry with no customers or revenues.
The marketing restriction has been described as a major impediment for the co-ops, but Health Republic’s chief marketing officer, Cynthia Jay, said the nonprofit is allowed to used the loan funds for “education and outreach” as long as specific insurance plans are not being advertised.
That encompasses television and print commercials, a social media presence, and nearly daily enrollment events at hospitals and public libraries in North Jersey and Central Jersey.
Health Republic has also run into some of the same stumbling blocks other insurers have encountered. In particular, the rocky rollout of Healthcare.gov last fall made it nearly impossible for people to sign up for several weeks, pushing back Martin’s enrollment goals. He had previously projected enrolling 20,000 customers a year for the first three years and then starting to see revenues exceed expenses.
“Do we think we’ll get there? Yes. The question is when,” he said. “Certainly not as aggressively as we had imagined.”
Through January, 54,805 state residents had used the marketplace to choose a plan from AmeriHealth, Horizon or Health Republic. That does not include people who signed up directly with insurers or small-business customers.
Entering a complex market
Another unexpected obstacle has been the sheer newness of health insurance to many potential enrollees, Martin said. Many of them are unfamiliar with terms like co-pay and co-insurance, and have trouble balancing the varying premium costs, provider networks, out-of-pocket limits and other options in health plans.
“You sit down and spend an hour to an hour and 15 minutes with somebody, going through all of their options — and that’s if they’re prepared with correct information and have given some thought to what it is they want, what they can afford, how much out-of-pocket they can handle, how much health risk do they currently have, what’s their current health status and what do they anticipate,” he said.
“Once you start running all that by people, we find this is not a quick and easy, ‘Oh, I like that one. I think I’ll sign on,’ ” he said.
Jay noted that because Gov. Chris Christie opted to depend on the federal marketplace instead of creating a state exchange, New Jersey has not seen the influx of hundreds of millions of dollars to publicize and explain health insurance options, the way New York and some other states have. New Jersey also lost a $7.7 million grant to support the marketplace last month because federal officials turned down the state’s request to use the grant for purposes other than marketing.
Last year, Martin said, Health Republic hoped to boost enrollment by offering some of the lowest-cost plans in the marketplace. However, an error in the way it calculated its benefit costs forced the cooperative to revise its plans, resulting in premiums that are no longer the cheapest available, he said.
The problem related to the out-of-pocket maximum, the amount a member must spend on in-network health costs before the insurer begins picking up 100 percent of those expenses. The cooperative initially used the federal maximum of $6,350, but later learned New Jersey limits the maximum to $2,500.
For customers with high health expenses, that means New Jersey insurers end up paying out more than they would under the federal rule. Health Republic realized it would have to charge higher premiums to make sure its health plans would not be money-losers.
“That meant we had to go back to the drawing board with our actuaries and everybody else” to recalculate the premiums, Martin said.
Jay noted that, as a new insurer, Health Republic does not yet have an archive of past cost and actuarial data to help it fine-tune its rates. It also is not in the huge large-employer market, where big insurance companies have revenues they can use to offset narrower earnings in the individual market, she said.
Higher premiums, but total costs vary
The co-op’s revised plans ended up not being the least expensive in each level of New Jersey’s exchange. For example, for a 27-year-old enrollee, Health Republic’s least expensive bronze-level plan is $298, while AmeriHealth offers one for $230 and Horizon’s cheapest is $286. Bronze plans cover about 60 percent of health costs, while the next tier of silver plans cover about 70 percent.
At silver, the level where many enrollees land, Health Republic offers three plans for about $330 a month while the other companies’ premiums range from $261 to $361. Its gold plans are similarly in the middle of the pack, and its high-coverage platinum plan is $414, below the one other platinum plan, AmeriHealth’s $479 option. Premiums at all levels may be higher for older enrollees.
Nationally, many of the 23 new co-ops are selling more of the expensive platinum plans than expected rather than bronze and silver plans,. The co-ops have enrolled close to 300,000 members so far, according to the National Alliance of State Health Co-ops.
Martin acknowledged that some people are signing up for the cheapest plan they can find. But as others in the industry have done, he cautioned that plans include many variables and in some cases the cheapest premium does not make for the lowest health costs overall, or what Jay called the “total cost of ownership.”
Such costs as higher deductibles and higher copayments are typical of plans with lower premiums, and other factors such as frequency of medical visits and which hospital groups are members of a particular plan also come into play, so the overall cost to the insured person could ultimately be higher despite the lower monthly bill.
And then there was the example of an East Windsor woman who reportedlybecause she determined that it covers a drug she needs for just $30, compared to a cheaper plan that would cover only half of the $300 monthly cost, thereby making the high-premium plan more economical.
Jay also noted that the cooperative has not created cheaper plans with provider “tiers,” as Horizon and AmeriHealth have done. People in those lower-premium plans pay less to use a specified subset of hospitals. But members who use nearby hospitals that are not in the top tier, or want to use an excluded hospital for another reason, will end up with higher overall costs.
Instead, all Health Republic members have the same provider access through QualCare Inc., a statewide network controlled by a group of hospitals. Qualcare has more than 100 hospitals and 20,000 physicians and other providers in New Jersey, New York and Pennsylvania, according to its website, and serves more than 800,000 members.
Reaching a target market
As Health Republic seeks to build up its member base, it is targeting working people who do not have health insurance for various reasons and whose incomes are between 138 percent and 400 percent of the federal poverty level, making them ineligible to enroll in Medicaid but eligible for subsidies to buy insurance, Jay said.
To find those customers, staffers have done detailed research on the state’s self-employed and uninsured and visited promising areas, finding for example a large population of Korean small-business owners in the Fort Lee area who may not have insurance and may be interested in Health Republic’s plans, she said.
The cooperative is focusing on urban areas, where the populations of freelancers and the self-employed are densest, but enrolling members statewide. With a surge of enrollees expected before the marketplace’s open enrollment period ends on March 31, Health Republic’s 21 staffers are taking turns staffing tables at train stations to urge commuters to sign up, Jay said.
“We’ve been at PATH stations throughout the cities, handing out some of our information. We’re getting ready to do a NJ Transit rail station campaign. I know nobody else is doing things like that,” she said. “It’s really thinking out of the box. We don’t have a lot of people and a lot of resources, but everybody chips in.”
The cooperative is also trying to establish a presence in the small business market through the insurance firms that provide coverage to small groups, Jay said.
“We’re building relationships with brokers out there,” she said. “We’re a newcomer, and what we’re finding is that they’re really interested in selling our products because we’re new. We’re trying to get them comfortable with us.”
Health Republic’s status as an upstart nonprofit is one of its biggest selling points, despite the challenges it has created, Martin and Jay said. Potential enrollees like the fact that surplus revenues will be reinvested in the business and that members will eventually make up at least 51 percent of the board, they said.
“They get excited about that, because they do hear, ‘We’ll have a voice,’ ” Jay said. “The general co-op concept appeals to people, whether it’s a food co-op, or a credit union, or just kind of a community. We’re new. It’s something that appeals to people.”
Health Republic’s plans do not envision it becoming a leading insurer in the state. Horizon, for example, has over 3 million subscribers. But Martin and Jay said they are expecting a bump in sign-ups ahead of the open enrollment deadline, more signups from small-group employers, and a steady flow of inquiries from people whose old “basic and essential” plans will be canceled through the end of the year because they do not meet the ACA requirements.
“There’s an additional number of people who will be, after March 31, continuing to receive letters that say, ‘We can no longer offer you the plan that has been offered in the past,’” Martin said. “So it will cause them to be shopping and looking, and hopefully they will have heard about us in the process.”