Northwell Health CEO Michael Dowling (photo by Jennifer Romonyske)
Northwell Health will shut down its CareConnect insurance operation and withdraw from New York State's insurance market over the next year, the health system announced Thursday.
New York-based Northwell said it suffered financial losses due to risk adjustment numbers that favored the larger health plan in the region, Oxford Health Plan, which is owned by UnitedHealthcare.
Northwell posted an operating loss of $36.2 million during the first quarter, with $22.7 million of that from losses in CareConnect's individual and small group plans.
The federal risk adjuster methodology in the small group line of business represents about 80 percent of the business.
CareConnect would have been profitable in 2017 if it were not for the $112 million it had to pay into the Affordable Care Act's risk-adjustment pool – amounting to about 44 percent of CareConnect's 2016 revenue from its small-group health plan business, according to Northwell.
In 2016, CareConnect paid $130 million in the budget-neutral risk adjustment system because the government deemed CareConnect's members as less sickly than the populations served by other plans in the New York City metro area.
State regulators agreed to reduce the risk adjustment by 30 percent in 2018 and 40 percent in 2019, which partially helped Northwell to break even, said Richard Miller, deputy CFO, and Howard Gold, Northwell's executive vice president.
Gold said he was hoping from more relief depending on what happened out of Washington for risk adjustment.
Northwell President CEO Michael Dowling made it clear Thursday that the federal government did not come through for the industry.
"It has become increasingly clear that continuing the CareConnect health plan is financially unsustainable, given the failure of the federal government and Congress to correct regulatory flaws that have destabilized insurance markets and their refusal to honor promises of additional funding," Dowling said.
CareConnect would be facing another risk-adjustment payment of more than $100 million in 2018 from its 2017 small-group revenue.
The insurance arm of Northwell allowed the health system to adopt population health strategies and negotiate a host of value-based insurance contracts. It manages the care of more than 400,000 individuals, including 125,000 customers covered through CareConnect.
Northwell said it remains committed to fortifying its population health capabilities to promote health and wellness.
"I greatly appreciate the positive steps taken by the New York State Department of Financial Services earlier this year to reduce the financial impact of the risk-adjustment program on CareConnect and other small insurers writing individual and small-group health policies," Dowling said. "However, the continuing uncertainty in Washington about the future of the ACA, intractable regulatory problems and the federal government's broken promise of so-called `risk-corridor' payments to insurers provide us with no viable path to profitability in the foreseeable future."
The ACA's risk-adjustment program was designed to prevent insurers from "cherry-picking" healthy customers who are less expensive to cover. However, defects in the small-group program have resulted in New York's smaller, more-innovative insurers like CareConnect to subsidize larger competitors, which have more in- depth medical histories on their customers than start-ups that have been in business for less than four years, Northwell said.
Northwell will be submitting a withdrawal plan to the Department of Financial Services, but CareConnect operations will continue over the next year as the company works with its customers, businesses and others to help transfer policy holders to other health plans.
CareConnect was established in 2013 as New York State's first provider-owned commercial insurance company, according to Northwell.