A Financial Analysis of New York City Start-up Health Plans and Reasons for Their Losses

Abstract

Purpose: Using New York City as an example, this research explores reasons for the consistently poor financial performance of three start-up health plans (Health Republic, CareConnect, and Oscar) while other health plans have performed relatively well in the same market.

Design and methods: This study compiles insurer data from financial years 2014 through 2016, submitted to the New York State Department of Financial Services as part of the rate-review process, including premium revenue, claims cost, risk adjustment, administrative costs, net income, and premium. The financial data were used to create a novel metric, adjusted net income, that evaluates the financial performance of an insurer excluding risk adjustment and assuming a market average administrative cost. Descriptive statistics were used to compare the performance of start-up plans, commercial plans, and Medicaid plans in the ACA exchange market.

Results: Premiums for start-up plans were within 9% of median silver premiums yet adjusted net income was negative (-$190 PMPM) for all three start-ups while it is positive (+$27 PMPM) for the non-start-ups. The difference in adjusted net incomes shows that poor financial performance of start-ups was due to claims costs, not high administrative costs and poor performance in risk adjustment.

Conclusion: The consistent financial losses by New York City start-ups is driven by higher-cost provider contracts for the start-ups relative to competitors.

Keywords: Health Care Costs; Insurance Carriers; Risk Adjustment.