photo_mvullo-1261374Confirmation hearings for Maria Vullo, Governor Cuomo’s nominee for superintendent of the Department of Financial Services, hit a sour note on Thursday when the questioning turned to last year’s collapse of Health Republic Insurance.

Although the fiasco unfolded before Vullo’s time at the department, her comments gave a misleading account of events and downplayed DFS’s own responsibility for what went wrong—raising doubt as to whether she has learned from her predecessors’ mistakes.

Health Republic was a non-profit “co-op” (consumer-operated and oriented plan) founded under the Affordable Care Act in 2013. By offering top-drawer benefits at rock-bottom prices, the company both attracted customers and ran up deficits from the beginning. DFS not only failed to stop Health Republic’s money-losing practices, but denied its full rate-hike requests in 2014 and 2015.

The company then learned that some $200 million in federal subsidies it had been banking on would not materialize, leaving it effectively insolvent. DFS shut the plan down in November 2015, disrupting coverage for 215,000 customers and sticking medical providers with hundreds of millions in unpaid bills.

Asked by senators how she would have handled things differently, Vullo asserted that the department was misled about Health Republic’s deficits.

“What I can tell you is that the company had provided financial statements to DFS of solvency, a very high level of solvency, throughout the time period,” she said. “And it was only until June 2015, when an outside auditor provided an audited financial statement that caused a deep-down review, where we saw that the estimates of liabilities were higher than perhaps they should have been.”

In fact, the department had plenty of earlier warnings about trouble at Health Republic—from the company’s filings, from its competitors, and even from the company’s top executive.

According to a revealing post mortem by Crain’s New York Business, newly appointed CEO Debra Friedman concluded in the summer of 2013—before Health Republic had sold a single policy—that its premiums were too low to be sustainable.

By August, one month into her new job and two months before New Yorkers could begin enrolling in Obamacare plans, Friedman realized the insurer had set itself up for disaster, former staffers said. She asked DFS to let Health Republic refile its rates. The regulator refused. Troy Oechsner, the agency’s deputy superintendent for health, said changing approved rates would be akin to having a closed bid and then letting one bidder change its offer after all the bids were made public.

As for why the company looked solvent on paper, this was because it expected tens of millions of dollars in “risk corridor” subsidies from Washington, and plainly reported that mushrooming amount on its balance sheet as an asset receivable. That was a questionable practice to say the least, since the subsidy was meant to partially compensate insurers for excessive operating losses in the early years of the ACA—meaning the more money Health Republic lost, the bigger this “asset” grew. Plus, in December 2014, a newly passed law barred the Obama administration from using tax dollars to make up a shortfall in the risk corridor program, putting both Health Republic and DFS on notice that the company was unlikely to collect its full amount. In the end, insurers owned money from risk corridors received only 12.6 cents on the dollar.

As Senate Health Chairman Kemp Hannon said to Vullo: “It became pretty obvious in retrospect—and hindsight always gives you great wisdom … that there were warning signs all along the way, that we should have known, we could have known. It wasn’t just the June or July outside auditor.”

Also discouraging, if unsurprising, was Vullo’s expression of support for New York’s “prior approval” law, which empowers DFS to directly regulate health insurance premiums. The industry charges that the department, under political pressure to keep prices low for consumers, tends to cut too deep—a complaint bolstered by the department’s decision to lower some of Health Republic’s rates a few weeks before declaring it insolvent. Also, there’s no evidence, in New York’s competitive insurance industry, that regulation works better than competition to keep premiums in line.

Yet Vullo’s comment on prior approval was: “From the regulator’s perspective, I think that serves New Yorkers well.”

She also resisted the idea, as suggested by Insurance Committee members, that the department should present actuarial evidence to back up its rate decisions.

To her credit, Vullo emphasized that she considers assuring the financial health of insurers—which was the original purpose of insurance regulation—to be her top priority.

“My main goal is the fiscal soundness of the institutions,” she said. “That is the primary part of my job, and I take that incredibly seriously.”

Prior approval, she said, means “balancing the financial solvency issues, which is my primary concern, and the tremendous cash burden on people, on your constituents, in terms of health insurance rates. And that’s not an easy task.”

It’s a balancing act she should not have to perform.

About the Author

Bill Hammond

As the Empire Center’s senior fellow for health policy, Bill Hammond tracks fast-moving developments in New York’s massive health care industry, with a focus on how decisions made in Albany and Washington affect the well-being of patients, providers, taxpayers and the state’s economy.

Read more by Bill Hammond

You may also like

Cuomo Administration Ducks Important Questions on Nursing Homes

A new report from the state Health Department tries to deflect blame for thousands of coronavirus deaths in the state's nursing homes—but undermines its own case by withholding data and engaging in tendentious analysis. Read More

Nursing Home Vacancy Rate Soars, Hinting at a Higher Coronavirus Toll

The vacancy rate in New York's nursing homes has more than doubled since the start of the coronavirus pandemic, suggesting that the death toll among residents may be thousands higher than officially reported. Read More

Unsure of COVID Impact, NY Insurers Roll Dice on Rate Hikes

The health insurance industry's rate applications for 2021, , reveal deep uncertainty about the long-term impact of the coronavirus pandemic on medical costs. Some companies anticip Read More

Hospitalization rising in some areas

Coronavirus hospitalizations are surging in parts of upstate, including three regions that the Cuomo administration authorized to begin reopening today. Read More

Uneven ‘relief’ for NY providers

A review of federal emergency payments to New York health-care providers reveals a striking disparity: Four of Manhattan's most prosperous private hospitals collected more individually than the 11 city-owned hospitals combined. Read More

A grim toll gets worse

The full toll of the coronavirus pandemic in New York is likely thousands higher than the official death tallies, according to newly released federal data. Read More

More fiscal turmoil for Medicaid

In a sign of pandemic-related strain on state finances, the Cuomo administration is postponing a series of multi-billion-dollar Medicaid payments over the next three months. Read More

Upstate escapes the worst

With the coronavirus pandemic hitting some parts of New York much harder than others, Governor Cuomo has signaled that he will begin to relax shutdown restrictions in low-virus parts of the state. Here's a closer look at how infection and fatality rates vary from region to region. Read More


Sign up to receive updates about Empire Center research, news and events in your email.


Empire Center for Public Policy
30 South Pearl St.
Suite 1210
Albany, NY 12207

Phone: 518-434-3100
Fax: 518-434-3130


The Empire Center is an independent, non-partisan, non-profit think tank located in Albany, New York. Our mission is to make New York a better place to live and work by promoting public policy reforms grounded in free-market principles, personal responsibility, and the ideals of effective and accountable government.