How Health Republic Is Going Strong

Robert Meehan took over as head of Health Republic of New Jersey in October, but he is no stranger to the insurance industry.

Having previously held senior positions with Prudential Financial and Horizon Blue Cross Blue Shield of New Jersey, Meehan has insight into the changing insurance industry and can use his experience to fulfill the purpose of the co-ops to create competition in the business.

Health Republic, which was created in 2013 to take advantage of the Affordable Care Act, has had a strong year in 2015. The company saw a huge spike in covered lives compared to 2014, to 55,000 from 5,000.

What's more, the company in just two years has risen to No. 3 in market share when it comes to covered lives in New Jersey.

And while Meehan believes health insurance is never going to be cheap, the goal to make it affordable can be achieved.

NJBIZ sat down with Meehan and Chief Marketing Officer Cynthia Jay to discuss Health Republic's turnaround.

NJBIZ: What did Health Republic do differently to earn such a strong following?

Robert Meehan: We probably unwittingly ended up with higher rates in 2014, which meant we had very little membership. Going into 2015, we decided we should price this product somewhere closer to support average New Jersey claims costs. So we did that and we ended up with rates that were on the lower end of the market. Our objective was to set the rates that would be self-supporting and did not assume we would receive additional subsidies from the federal government - the way other co-ops did (many of which are now failing).

NJBIZ: Price is always great. But it's a competitive market and Health Republic had little name recognition or reputation. How were you able to get such a spike (from 5,000 to 55,000) in membership?

RM: In 2015, when we were below the median price, we ended up on the first page of healthcare.gov because they list the products in ascending cost order. So from a consumer point of view, that's where you want to be. And some of our competitors were operationally challenged, so we picked up some membership from them.

So all of that created a perfect situation with the pricing.

NJBIZ: Were there any problems with such a big jump in customers?

RM: There were some operational issues, like call wait times were a little longer than we would have liked, but, we actually brought those customers on with relatively few problems. Customer retention has been pretty good.

NJBIZ: How does your background with two major insurance players in New Jersey help you in your current role?

RM: I'm a product of 35 years of being in the business and watching things - some were wildly successful and some fell flat on their face. You bring to any opportunity the sum of all those experiences. One of the things I've learned is price sensitivity and constantly underpricing the product will cause problems with customer retention.

NJBIZ: What are the most notable changes in the industry, and how do those changes help direct the vision for Health Republic?

RM: One of the things that is lacking in our competitors is the culture is still one of wholesale - and the debate is who the customer is in the wholesale world. In the retail world, the employer is not making the key decision anymore. In the retail world, women are actually making between two-thirds and 75 percent of the buying decisions. Yes, we are going to do some wholesale with the small group and eventually large group, but ultimately the exchange business is we are retailers now like auto insurance companies.

That may sound simple to you, but that is a fundamental cultural shift for health insurance companies and that is why the customer service still isn't what it should be.

NJBIZ: What's the marketing strategy to deal with this new environment? What are you finding success with?

RM: One of the things we are doing really well is (the marketing department) has developed great broker relationships.

Most of the businesses nationally on the individual side is moving on the exchange. But part of the Affordable Care Act also called for a small business health options program. That's not where we are nationwide at all. The reason why is that small business owners have small businesses to run and would rather rely on their broker. We've been growing nicely in small employer (plans).

NJBIZ: Are there any challenges in dealing with the small employer market? Any plans to grow beyond that?

RM: One of the issues in employerbased businesses is most of them don't want to be the early adapters. So brokers, because their livelihood is based on selling a product to a customer and having it run well - they want to wait and see somebody else kick the tires. We had to build up the momentum, and we did. So (business from small employers) has been growing nicely, and we need to because that old Marketing 101 thing - you can't have all your eggs in one basket - a lot of our business is in the exchange business. While it has been good for us and we are happy with it, we can't be dependent on just that business. So we are growing in the small employer business and plan in 2017 to branch out to other products as well. We'll take it above 50 employees sometime in 2017, we'll end up on the lower end of large group.

Will we go into Medicaid? Maybe, but not in the near future.

NJBIZ: Because of conservative pricing the savings resulted in a check back to some members. Why is that significant?

RM: Some customers did get a check for savings in 2014, that's true, but that's not really a significant part of the story. The savings resulted from having set rates a little higher than the average cost. As a customer would you rather see savings before or after? We came just marginally below the anticipated numbers in 2014 and we are pretty close to it again this year, which is a story in itself in the industry because so few people are getting to that number. To the consumer - not really something they are interested in. But to our health care providers, very much interesting. They want a viable partner. Some health care providers in New York, for example, are not going to get paid because one company went bankrupt, and that is happening around the country.

NJBIZ: Obviously that's not a good thing, but why is that happening?

RM: One of the things that's unique for co-ops here is we have to grow capital organically. The loan agreement between us and the federal government (Centers for Medicare and Medicaid Services) makes it difficult for us to raise capital from other sources. So when the government budgeted for the ACA "X" amount of dollars, we got our share, and we pretty much have to live with that. Which is fine, as long as you understand the rules of the road and run your business accordingly.

NJBIZ: So other co-ops got less than y ou? Or was it something else you did differently?

RM: We don't rate our businesses assuming that we won't risk our money from the federal government - which turned out to be a wise business decision when the federal government announced earlier this year they were only going to pay 12.6 cents on the dollar. That caught a lot of plans short because they were planning and budgeted on that plan. So when the government announced that, some companies went right over the cliff into insolvency. We never did that. There was a degree of skepticism from (our actuaries) that the money would be there. That skepticism turned out to be well-founded.

NJBIZ: Faced with a challenge like that; how do you compete with major players in the state? How do you spread the word?

Cynthia Jay: We really came into it with the David and Goliath problem, so we had to raise whatever brand awareness to even be identified as an insurer the first year. We have been not just passionate but aware. And we are coming into a state that is fairly monopolized by two large health insurers, so how are we going to make it? No other insurer had been successful here in the last 17 years as far as entering into this market. We had to grow organically to make our presence known. So a lot of what we did was what any startup would've done. Sure, it's marketing and outreach and broker sales, but customer services is what we are touted for.

NJBIZ: And you have done all this without advertising?

RM: If you want to reach people, it's usually through TV. That is an extremely expensive proposition in New Jersey. So the fact that we've gotten to the brand awareness level that we have in such a short time and not being able to rely on broadcast TV is incredible. The other thing is the focus of the whole co-op from the ACA was small employer, but principally individual (plans) because that was the most underserved market in the United States. Our primary competitor (Horizon) had virtually no competition for decades. Prior to the start of the ACA they had more than a 70 percent market share; it's now down to the low 50s, and we are (ranked) No. 3 in less than two years of full operation. And we are just a shade under No. 2 - it's really a horse race between us and AmeriHealth.

NJBIZ: So what would be the magic number for Health Republic? What is the membership goal?

RM: I don't think our success is measured by members. I think it's measured by offering a quality product that is acknowledged as one of the best in this market, that provides access to high-quality health care and we build a company that is sustainable. We have annual goals on building a surplus, but we don't have an earnings per share goal. We work for our customers we don't work for shareholders.

NJBIZ: How has the recent controversy over Horizon's OMNIA Health Alliance and tiered network product affected you?

RM: When you become such a big part of a hospital's revenue system, they really can't afford to discount their offering to you too much more. The other side of the coin is a lot of the hospital systems - and this is capitalism at work here - don't want to put all their eggs in one basket, because then it's about who has more leverage. So it is to their advantage to have someone like Health Republic in the game as an alternative. The brokers treat us the same way - competition is the name of the game.

NJBIZ: Do you have any unique plans or work closely with any health systems?

RM: We've created an innovative relationship with CentraState down in Freehold. Big companies find that hard to do - to create a product around one health care delivery system, to customize a product to that level. CentraState has great programs, but they said they aren't good at marketing. Well, we have access to customer's emails, so what we can do is send emails to members in Freehold saying "next month, here is what is going on at CentraState."

You can imagine some of those Tier 2 hospitals are not very happy (with OMNIA) and have called us and said, "What about me?"

NJBIZ: What do you think about the growing demand by customers for price transparency?

RM: The hospital can't tell you what it's going to charge because they don't know what's going to happen when you get there. If they are running a mammogram, they can tell you what the cost is - that is pretty straightforward. But if it's a surgical procedure, and the doctor is not exactly sure what he or she is going to find, it could be simple, it could be complex, especially under feefor-service pricing. Global pricing is coming; providers understand they are going to have to start taking on some risk in this business. There is a lot wrong with pricing now.

NJBIZ: What is Health Republic doing to address the current pricing system for doctors who can't get reimbursed for advising the patient on a phone call?

RM: (Health Republic) probably isn't doing enough in that direction, to be honest. One of the disadvantages of being small is it is hard to do the kinds of things we are talking about, but it's hard for some of the biggest players, too. The federal government, between Medicare and Medicaid, is best-positioned to do this. (Physicians) should get reimbursed for keeping the patient healthy, and if that includes a phone call, emails or text messages, that would be the more productive solution rather than expanding and adding another component to the fee-for-service method.

NJBIZ: Has the fact that you have captured such a significant portion of the individual market signal anything to major players?

RM: I think we are too small to have an effect, or it is too soon, at least. The story of 2015 - clearly the final chapter hasn't been written yet since we are still in December - is our competitors do realize we have taken away some of the market share this year. They are not really aware how well we did financially. Our competitors will watch, and will be asking themselves, if they did not do as well this year, what did we do that they did not do?

By the numbers

Health Republic of New Jersey

$27.4M

Claims expenses

$19.6

Income from premiums

$12.4M

General administrative expense

-$1.8M

Projected 2015 net loss

-$16.5M

Net loss

Source: U.S. Department of Health and Human Services

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On Twitter: @anjkhem