Health Republic of New Jersey's ACA risk-adjustment payable increased even as claim cost rose more than the company expected. (Photo: Allison Bell/LHP)

New Jersey insurance regulators have asked a state court in Trenton to place the state’s Consumer Operated and Oriented Plan in rehabilitation by Sept. 19.

The Freelancers Consumer Operated and Oriented Program of New Jersey, which has been doing business as Health Republic of Insurance of New Jersey, is in a hazardous condition, according to Richard Badolato, the commissioner of the New Jersey Department of Banking and Insurance.

The department wants to let the CO-OP stay in operation until the end of the year and then shut down its operations, officials say in a petition for rehabilitation filed today.

Executives of the Newark, New Jersey-based Health Republic have agreed to let regulators put the company into rehabilitation, according to a letter from Tom Dwyer, the company’s interim chief executive officer, that’s included in the rehabilitation petition packet. Dwyer says he is still hoping the management team can find a way to raise enough capital to get the company back into the market in 2018.

Regulators have already shut down two sister companies, Health Republic Insurance of New York and Health Republic of Oregon.

Related: New York starts official Health Republic liquidation proceedings

An affiliate of Freelancers Union, a New York City-based group that lobbied for the rights of freelancers for years, and set up benefits programs aimed at freelancers, helped advise the teams that set up the companies using loans from the Affordable Care Act CO-OP program. Organizers used $109 million in program loans to start the New Jersey CO-OP, officials say.

Health Republic of New Jersey is now covering 25,934 people through 14,507 individual and family policies, and 9,016 people through 1,372 small employer group policies, officials say.

The New Jersey CO-OP never earned a profit. It ended 2015 with about $34 million in capital surplus, but it had $14 million in negative capital and surplus as of June 30, officials say.

The Centers for Medicare & Medicaid Services told the company its bill for the ACA risk-adjustment program for 2015 would be $46 million. That’s up from $17 million for 2014, officials say.

The risk-adjustment program is supposed to use cash from insurers with low health-risk scores to help insurers that attract enrollees with high risk scores.

The amount of cash coming from another ACA risk management program, the ACA reinsurance program, which is supposed to protect an individual coverage issuer against bills from enrollees with catastrophic claims, fell to $26 million, from $32 million.

Meanwhile, at the operational level, “the utilization volume and severity of claims for Freelancers’ 2016 membership has trended significantly above projections and continues to rise,” officials say.

Health Republic of New Jersey reported that the amount of claims “incurred but not reported,” or IBNR, increased to $42 million at the end of June, from $28 million six months earlier.

Officials say in the rehabilitation order that the commissioner wants the authority to take all assets or property of Health Republic of New Jersey, including any premium payments collected from the enrollees. An agent should not try to use any of the premium money to collect commission payments, unless the contract or policy is canceled before the rehabilitation order takes effect, according the New Jersey department’s rehabilitation petition.

Max Baucus, who represented Montana as a Democrat in the Senate, and other Mountain State Democrats, asked for ACA drafters to include a CO-OP funding provision in the 2010 law, in an effort to create a new breed of nonprofit, member-owned health plans that could increase the level of competition in the commercial health insurance market.

When Baucus and other CO-OP supporters retired, the program lost momentum.

The Obama administration agreed to let Republicans cut CO-OP funding in budget bills, and the administration’s U.S. Department of Health and Human Services put tight restrictions on who could run a CO-OP, how CO-OPs could pay for marketing, and what could happen to CO-OP assets.

The member owners of a CO-OP cannot transfer ownership of a CO-OP to any other entity, which means that they have no ability to use the operations of a CO-OP as collateral for conventional commercial loans.

Seventeen of the 23 CO-OPs that were funded have shut down, or are in the process of starting to shut down, and officials have said that five of the other six CO-OPs are getting some form of extra attention from regulators. 

Related:

For feds, fate of dead CO-OPs’ former enrollees is a mystery

First federal plan selection deadline nears

Have you followed us on Facebook?