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August 25, 2017

Northwell Health to close insurance arm, citing flaws in ACA risk-adjustment program

Daily Briefing

Northwell Health on Thursday announced it will shut down its insurance arm, CareConnect, and exit the Affordable Care Act's insurance exchange for New York, saying that flaws in the ACA's risk-adjustment program had made CareConnect unsustainable.

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CareConnect, launched in 2013, covers about 125,000 members, including about 13,000 members covered through the exchange, Modern Healthcare reports.

Northwell cites losses due to ACA's risk-adjustment program

Northwell in its announcement cited its financial losses due to the ACA's risk-adjustment program, which is intended to shift funds from plans with lower-risk members to plans with high-risk members. Various insurers have criticized the risk-adjustment formula, arguing that it does not accurately reflect policyholders' health status.

In a press release, the health system said that "CareConnect would have been profitable in 2017 if it were not for the $112 million it had to pay into the … risk-adjustment pool." It attributed the size of that payment to "defects in the small-group program" that require "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."

According to regulatory filings, Northwell said CareConnect had a net loss of $157.9 million for 2016, despite an increase in premium revenue from $127.5 million for 2015 to $360.8 million for 2016.

According to Northwell, CareConnect will continue operations over the next year as it helps members transition to new health care plans. Northwell added that it would also try to find new employment elsewhere in the health system for the more than 200 staff working at CareConnect.


Michael Dowling, president and CEO of the health system, said of the decision, "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 continued, "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."

He added, "As much as we regret having to make this decision to withdraw from the market, I continue to believe in the strategy of CareConnect, population health, and the benefits that come from value-based care." Dowling said Northwell would continue to prioritize population health initiatives, "explor[ing] new models of care delivery that will help us accomplish the triple aim of improving the patient experience and the health of our communities, and reducing the per capita cost of care."

Separately, Maria Vullo, superintendent of New York's financial services department, said despite CareConnect's exit, the state's insurance exchange remains "robust."

She added, "While it is unfortunate that the continued uncertainty across the nation due to the repeated actions of the federal government to undermine the Affordable Care Act at this time in the insurance cycle has caused CareConnect to begin an orderly wind down from the market, we recognize that this decision will help Northwell focus on its core mission to deliver healthcare services to New Yorkers" (Livingston, Modern Healthcare, 8/24; Ellison, Becker's Hospital Review, 8/24; Morse, Healthcare Finance, 8/24; Minemyer, FierceHealthcare, 8/24; Northwell Health press release, 8/24; ).

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