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

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.

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.

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.

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