Freelancers Insurance Company, the pioneering nonprofit health insurer that was once hailed as a model for the Affordable Care Act, is closing its doors because of the high cost of complying with Obamacare regulations.
The New York nonprofit announced Sept. 30 that it would have to raise premiums 14 percent to comply with Obamacare regulations. Federal officials had granted a special one-year waiver to Freelancers in 2013 to meet the new rules. The waiver expires Dec. 31.
The cost of regulatory compliance might not be the only factor in Freelancers’ sudden demise. The latest rankings from the New York Department of Financial Services, the state’s insurance regulator, showed that Freelancers continued a multiyear trend of having one of the lowest consumer satisfaction ratings in the state.
Sara Horowitz, Freelancers’ founder, has been under congressional scrutiny as a result of a 2012 decision by the Centers for Medicare & Medicaid Services to award $340 million in Obamacare funding to a related organization she created to establish health insurance co-ops in New York, New Jersey and Oregon. The Horowitz-backed trio were among 24 co-ops authorized by Obamacare to compete with private insurers under a $2 billion appropriation.
Horowitz founded Freelancers Insurance as a nonprofit health insurance company in 2008, promising it could compete with for-profit insurers. She said Freelancers would offer great coverage at low cost.
She had won a MacArthur Foundation “genius grant” in 1999 and convinced the Rockefeller Foundation and other liberal foundations to give her $7 million in grants to start Freelancers Insurance. Private investors provided another $10 million, according to the New York Times.
Jaclyn Kessel, a vice president with the BerlinRosen communications firm and a spokeswoman for Freelancers, declined to disclose the extent of the company’s financial losses or how the company would compensate its private investors.
But New York state records show Freelancers performed badly throughout its six-year life span. DFS ranked Freelancers the state’s third-worst insurer in terms of consumer complaints among 45 commercial insurance carriers in 2013.
This was an improvement over DFS rankings in 2011 and 2012, when Freelancers was ranked at the bottom of all commercial health insurance carriers in New York.
Freelancers told customers Sept. 30 that their coverage would end Dec. 31. The company said it would automatically transfer existing members to another insurer, Empire BlueCross BlueShield.
“When we looked at the future of our plans in the new healthcare reform landscape, we quickly realized we could offer benefits and coverage at better value to freelancers by partnering with an insurance carrier with size and scale like Empire. We estimate that rates would be 14 percent higher had we not formed this partnership,” Kessel said.
DFS ranks Empire lower than Freelancers. Empire has been criticized for “narrow networks” that exclude many doctors and hospitals.
Regulators found that Freelancers was reversed 67 percent of the time when a customer appealed a coverage decision to an outside authority. It was the highest reversal rate of any commercial insurer in New York.
Customers filed a large number of grievances against Freelancers. Consumers can file a complaint if an insurer refuses to refer a patient to a medical specialist or if there are disagreements over benefit coverage.
Of the 176 grievances filed by consumers against Freelancers in 2013, the company was forced to reverse itself in 48 cases, a reversal rate of 27 percent, according to regulators. It was the fifth-highest reversal rate among all commercial carriers in New York.
It is fairly rare for consumers to file grievances against health insurers. In 2013, for example, 27 insurers reported that none of their customers filed grievances.
Disgruntled Freelancer consumers, however, have gone public with their complaints. So many consumers were upset with poor Freelancer service in 2008 that they created a weblog named Upset Freelancers Union Members (upsetfu.blogspot.com).
Hundreds of disgruntled consumers aired their complaints on the website, and many canceled their insurance plans. The company’s customers complained about poor service, restrictive medical coverage and an unresponsive call center.
The fact that Freelancers is now closing its doors due to the cost of complying with Obamacare is “completely ironic,” said Sally Pipes, president of the Pacific Research Institute, a San Francisco think tank. “In the end, the Affordable Care Act was actually harmful to Freelancers.”
Pipes, a Canadian with expertise in healthcare policy, speculated that the law’s requirement that insurers provide a massive number of new benefits doomed the company.
“Now it’s the Affordable Care Act that’s putting them out of business because they can’t comply and provide affordable coverage,” Pipes said.
When the company realized it could not offer affordable insurance that met the standards imposed by Obamacare, Kessel said, Freelancers officials took six months to find a suitable partner.
But Kessel did not explain why the company did not select Horowitz’s Health Republic of New York, which received $265 million in federal Obamacare funds to help create the New York co-op.
Horowitz was a colleague of Illinois state Sen. Barack Obama when the two were members of the board of directors of Demos, a liberal think tank funded by George Soros.
Rep. Darrell Issa, R-Calif., chairman of the House Oversight and Government Reform Committee, told the Washington Examiner that there were “serious questions” about the activities of Horowitz’s political arm, the Freelancers Union, which lobbied for the $340 million in Obamacare funding it used to create its health insurance co-ops. Issa said he was concerned about the coziness between Horowitz and the Obama administration on the loan award.
“The committee’s oversight of Obamacare raised serious questions about Freelancers Union and its participation in the Obamacare co-op program as a way to promote its political goals,” Issa said. “Freelancers received millions of taxpayer dollars through cozy contacts with the Obama administration and extensive lobbying of CMS. The American taxpayers deserve better.”
Horowitz was appointed to the board of the Federal Reserve Bank of New York in 2012 despite having no experience in the banking industry.
