Parts 9-11 of Health Republic’s Curious Liquidation concerns a January 2016 Roundtable convened by New York State Senators James L. Seward and Kemp Hannon; a December 2016 letter from Senators Seward and Hannon to Department of Financial Services (DFS) Superintendent Maria T. Vullo asking about the pace and direction of Health Republic’s liquidation; and whether the Superintendent missed an opportunity to settle Health Republic’s account with the Department of Health and Human Services before the Obama administration left office in January 2017.

Albany’s Take on Health Republic’s Failure and a Timeline

In October 2015, Health Republic’s board of directors stepped down and agreed not to oppose a petition to liquidate Health Republic.  For the next half-year, Health Republic operated under the direction of the DFS and outside consultants, including Alvarez & Marsal.

A. The Roundtable and Thereafter

On January 6, 2016, the New York State Senate Committee on Health and the New York State Senate Committee on Insurance convened a joint “Roundtable on the Demise of Health Republic.”[1]  Senator Seward, Chair of the Insurance Committee, and Senator Hannon, Chair of the Health Committee, led the Roundtable.

Senators Seward and Hannon, committee members, and several invited insurance company and health organization executives discussed why Health Republic failed and when Health Republic’s policyholders would be reimbursed for their unpaid claims.[2]  The Governor had not yet appointed Ms. Vullo to succeed Benjamin Lawsky as head of the DFS and she did not attend the Roundtable.[3]  Troy Oeschner, the head of the DFS’s Health Bureau appeared on behalf of the DFS.  In conjunction with the Roundtable, the press reported on an ongoing  DFS investigation into Health Republic’s failure.[4]

In April 2016, Acting Superintendent Vullo, represented by the N.Y. State Attorney General, petitioned to liquidate Health Republic.  In May 2016, Justice Carol Edmead, sitting in Part 35, Supreme Court, New York County, granted the petition and began overseeing Health Republic’s liquidation under New York Insurance Law Article 74.

B. The Confirmation Hearing

In June 2016, Acting Superintendent Vullo was in Albany for her confirmation hearing.[5]  During the hearing Senators Seward and Hannon asked, among other things, why Health Republic failed so quickly while operating under DFS supervision.[6]  Many of the Senators’ questions concerned the DFS’s prior approval of Health Republic’s rates, particularly after many of the Roundtable participants had remarked that they believed from the outset that Health Republic’s rates were unrealistically low.  Senator Seward, for example, observed that it seemed as if everyone familiar with Health Republic’s rates and business model, except those in charge of overseeing health insurance rates at the DFS, believed that Health Republic was either in trouble from the outset or would soon fail.

In the back and forth during her confirmation hearing, Ms. Vullo testified that the DFS had “a pending investigation to see what went wrong.”  She reminded the Insurance Committee that she was not at the DFS when Health Republic failed, but that she had directed that Health Republic be liquidated and that Health Republic was operating  under court supervision.

Senator Hannon pointed out, as had Senator Seward, that many insurance company and health association executives at the Roundtable believed that there were a number of warning signs that preceded Health Republic’s collapse.  Senator Hannon asked Ms. Vullo how a failure akin to Health Republic’s collapse could be avoided in the future.  She replied that any risk-based capital deficiencies would be brought to her attention or to the attention of her First Deputy. But Senator Hannon pushed back, observing that the Roundtable discussions had revealed, in his opinion, serious deficiencies in how Health Republic’s rates, actuarial submissions, and business model were reviewed and approved.

On June 15, 2016, Ms. Vullo was confirmed unanimously to head up the DFS.

C. The Senators’ Letter

On December 13, 2016, Senators Seward and Hannon sent a letter to Superintendent Vullo seeking “a status update” on Health Republic’s liquidation.  The Senators acknowledged that the Court supervising Health Republic’s liquidation had directed that certain information concerning the estate be posted online.  While the Senators found these online postings “helpful,”  they felt that it also would be “helpful . . . for DFS as Liquidator to provide the Legislature with an update regarding what has transpired [in the liquidation] to date as well as what is to be expected in the coming months.”[7]

In their letter, the Senators asked Superintendent Vullo about the unaudited Health Republic balance sheet prepared as of September 30, 2016.[8] The Senators remarked that the balance sheet showed Health Republic with assets just under $100 million, but with liabilities of more than $465 million. The Senators asked if the balance sheet had been updated.

Turning to the estate’s expenses, the Senators pointed out that from May 11, 2016 through the end of September 2016, the New York Liquidation Bureau (Bureau) had spent almost $4 million in consulting, legal, other professional, and administrative fees, as well as other expenses for the Health Republic estate, but that none of these fees or expenses had been  Court-approved.  The Senators, therefore, asked whether the Superintendent, in her role as Health Republic’s Liquidator, could “estimate [what] the total costs of these outside vendors will be for the entire liquidation process, in order to ensure that what little assets remain are not unnecessarily spent.”  Finally the Senators returned to the question they raised at the January 2016 Roundtable: Why did Health Republic fail?

[I]t is our understanding, based on comments raised during the Senate Roundtable [in January 2016] and discussed in the press, that [the] DFS has an ongoing internal investigation as to why Health Republic failed in the first place.

We would appreciate the current status of the investigation.  We further expect that there will be a report provided on the results of the investigation. It is paramount that such a failure be avoided by other health insurers in the future.[9]

D. The Superintendent’s Response

On January 25, 2017, about six weeks after receiving the Senators’ letter, Superintendent Vullo responded with a letter that I suspect was written by someone at the Bureau.[10]  The Superintendent advised the Senators that her “first priority as Liquidator has been to build a process for resolving policy-related claims . . .”[11]  She then discussed Health Republic’s short life and provided a thumbnail treatment of the Affordable Care Act’s (ACA) “3Rs” programs, which were designed to stabilize the ACA CO-OPs over their first three years of operation.[12]

With respect to the federal government, the Superintendent reported that “as a result of Congress’s action [in December 2014], the [Centers for Medicare & Medicaid Services (CMS)] sent Health Republic a series of notices terminating its financing arrangement under the CO-OP program and reducing its expected statutory payments under the Risk Corridors program.”  She also stated that in March 2016 — a month before she moved for an order liquidating Health Republic – an “‘administrative hold’ had been placed by [the Department of Health and Human Services] on all future payables to Health Republic . . .”[13]  She also claimed that “Congress’s actions resulted in over $130 million in unpaid Risk Corridor obligations to Health Republic.”  We will return to this figure below.

With respect to the estate’s expenses, Superintendent Vullo stated that “the first six to twelve months of a liquidation are generally the most intensive and much of the difficult work . . . is front-loaded.”[14] But she did not acknowledge that Health Republic operated under DFS supervision from at least October 2015, when Health Republic’s Board consented to liquidation and stepped down, until May 11, 2016, when Justice Edmead granted the petition to liquidate the company.  And, to my knowledge, no accounting was offered for the moneys spent during that entire period.

In her letter, Superintendent Vullo took credit for establishing a “transparent process for Health Republic’s liquidation.”  This process included, according to the letter, setting up a Health Republic website and a call center, even though the Health Republic website and the call center, both of which are operated by a third-party administrator, The Garden City Group, were  established well before Health Republic was placed in liquidation.[15]

She also stated that “we have posted vendor agreements on Health Republic’s website and provided a monthly tally of administrative expenses,” as well as an unaudited balance sheet.[16]  But she omitted that it was Justice Edmead who directed that the Liquidator post on-line all vendor contracts, along with a summary of the estate’s expenses[17] and your author first proposed, over strong objections from outside counsel representing the Liquidator, that a balance sheet be provided so that Health Republic policyholders could get some idea of the estate’s assets and liabilities.[18]

The Superintendent then completely ignored the Senators’ request for a report on the DFS investigation into why Health Republic failed and an estimate of the total projected costs of all vendors, consultants, outside counsel, and third-party administrators that had been paid, up to that point, without Court approval.

E. Superintendent Vullo Testifies Before the Legislative Budget Committee

Two weeks after the Superintendent wrote to the Senators, she returned to Albany to testify in Joint Budget Hearings conducted by the chairs of the Senate Finance Committee and the Assembly Ways and Means Committee. Senators Hannon and Seward participated in those hearings.

In her written testimony,[19] the Superintendent repeated some of the information contained in her letter to the Senators. She also stated in her written testimony that Health Republic had paid all claims up to November 2015, that a claims auditor[20] had been hired to review the work done by a claims adjudicator,[21] and that Explanations of Benefits (EOBs) would be issued to Health Republic’s former policyholders beginning in the Second Quarter 2017.

Superintendent Vullo’s written testimony confirmed that the federal government owed Health Republic $423 million in risk corridor payments and $51 million in reinsurance recoverables, not just the $130 million in unpaid risk corridor obligations referred to in her January 2017 letter.  She also advised that the $474 million owed by the federal government may be subject to the  government’s claims of offsets (offsets that, presumably, are based on the government’s start-up and solvency loans),[22] and that “payments to claimants cannot be made until the dueling claims with the federal government are resolved.”[23] (Emphasis added.)

This is important because if no Health Republic policyholder can be paid until all claims against the government are resolved, then even if all 700,000 Health Republic policyholder claims are processed and all claim rejections or objections are dealt with, Health Republic’s policyholders will have to wait until all of Health Republic’s claims against the federal government are fully determined or completely settled before any Health Republic policyholder will see a cent.

After her written testimony, the Superintendent then faced the legislators’ questions.  Senator Seward began by emphasizing that he remained focused on the prompt payment of all legitimate policyholder claims and alluded to a New York State “dry fund” contained within legislation proposed in 2016 that would pay for any shortfall with respect to moneys owed to policyholders.[24]  Senator Seward asked about the approximately two dozen lawsuits brought by health insurers, including several suits brought against the federal government by failed (or no longer active) CO-OPs formed under the ACA, to recover moneys due them under the ACA’s risk corridor program.  He wanted to know why Superintendent Vullo, in her capacity as Health Republic’s Liquidator, had not already sued the federal government to recover the risk corridor moneys due Health Republic, i.e., the $130 million alluded to in her January 2017 letter or the $474 million mentioned in her written testimony.

The Superintendent acknowledged that other actions against the federal government were underway[25] and that an ACA health insurer had recently won a favorable decision in the Federal Court of Claims.[26] The Superintendent then told the Finance Committee that she had determined that her claim against the federal government was not subject to a statute of limitations and that delaying her filing would reduce litigation costs.

In the exchange that followed, the Superintendent referred to an unidentified class action that had been commenced and advised that the attorneys in that class action would be seeking a contingent fee, but that she wanted no part of a contingent fee arrangement.[27] This was a curious observation in that under Article 74,  the Superintendent, in her role as Liquidator of a New York domiciled insurer, cannot be compelled to participate in a class action.[28]

Senator Seward pressed for her commitment that an action against the government would be commenced on behalf of Health Republic.  The Superintendent testified that it was only a question of “when” and not “if” she would commence suit against the government, but that for now she was “sitting on the complaint.”

Senator Hannon, Chair of the Health Committee, tried to clarify how much money the Superintendent would seek to recover under the risk corridor program.  Superintendent Vullo confirmed that the government owed Health Republic $432 million under the risk corridor program, but quickly pointed out that the federal government would in all likelihood seek to offset all or some of any amounts due under the risk corridor program with amounts owed to it by Health Republic for a $23 million start-up loan and $241 million solvency loan.

The View from Part 35

Despite this open exchange during the budget hearing in Albany, very little has been said in filings and appearances before the Court with respect to where Health Republic’s largest creditor (and largest debtor) stand in the liquidation.  Early on in the liquidation proceedings, I asked about the status of the federal government as debtor/creditor in Health Republic’s liquidation.  Outside counsel for the Liquidator, argued against my request that the Liquidator post a balance sheet for the estate and alluded to certain claims against the federal government.[29]  This topic also popped up during argument over my motion to appear as a friend of the court, but counsel for the Liquidator offered very little information concerning what the Liquidator intended to do about the risk corridor funds owed to Health Republic.

The status of claims against  the federal government came up in a January 2017 conference before Justice Edmead.  The Court asked about claims against the federal government in the context of a request that the unaudited September 2016 balance sheet posted on the Health Republic website be updated.

Court:  …We should have a number of what’s in the pot.  I thought I asked [for] this before. How is it we don’t have a number of what the pot consists of today?

Counsel for Liquidator. There is a balance sheet that’s been posted on the website.

Counsel for Northwell: But there’s supposed to be, on the balance sheet, whether or not [the Liquidator would] have a contingency for the claim against the federal government.

Court: That’s right…

* * *

Court: So the question is, what has the Liquidator done to proceed with its federal claims?…

* * *

Counsel for Liquidator: …I don’t think it would be controversial to say it would not be beneficial to be discussing that in an open forum.

* * *

Court: Okay. This is going to be like twenty questions here, and maybe you will answer; maybe you won’t.  These are claims that the Liquidator may have for the benefit of the estate?

Counsel for Liquidator: Correct.[30]

It’s curious to compare the Superintendent’s letter to the Senators and her written testimony in Albany with the tight-lipped refusal of counsel for the Liquidator to advise the Court about how the Liquidator intends to collect Health Republic’s most significant asset.

Health Republic and the Federal Government: What’s Next?

At this point, the Liquidator continued to polish and add to the estate’s claims adjudication procedures.  For example, in a March 24th letter to Justice Edmead, Special Deputy Superintendent David Axinn, who oversees the Bureau, told the Court that the Liquidator would move by order to show cause for approval of “Candidates for Appointment as Referees and Medical Claims Examiners.”[31]  Mr. Axinn enclosed with his letter a “Health Republic Projected Timeline,” which shows the “Resolution of Federal Claims” running through 2019 and to infinity.

Despite all the money that’s been spent since Health Republic ceased underwriting and stopped paying claims, this is how Superintendent Vullo, in February 2017, described when Health Republic’s policyholders will see even a partial payment.

Apart from potential action against the federal government, we do not believe that there will be significant additional assets with which to pay claims.  We will not know the amount of liabilities until the end of this year at the earliest, and payments to claimants cannot be made until the dueling claims with the federal government are resolved.[32]  (Emphasis added.)

In other words, the Liquidator may continue to build an elaborate (and expensive) “claims adjudication procedure,” but no policyholder will be paid until the federal government’s claims are resolved.

Sitting on the sidelines and “sitting on a complaint” may save a few dollars in litigation expenses, but until Health Republic’s risk corridor and reinsurance claims against the federal government — and any potential offset claims that the federal government may have against the estate — are resolved, no one except the estate’s advisors, third-party administrators, accountants, outside counsel, website administrators, and Bureau’s employees, all of whom have been and will continue to be promptly paid, will see any money.

The next item on the Health Republic docket would be an in camera session on May 4th during which Justice Edmead had, in the Court’s words, a “conversation” with the Bureau’s counsel concerning the estate’s expenses.  This in camera session was followed by an open court conference on May 8th.[33]  By that  point, the Liquidator and the Bureau had spent more than $6.5 million without court approval (plus whatever was spent from October 2015 to May 2016).

As far as any Health Republic suit against the federal government is concerned, we will just have to wait and see.  Note, however, that Republican  Senators in Congress are preparing to meet any attempts to collect a risk corridor judgment against the federal government with a pending bill – “The HHS Slush Fund Elimination Act.”[34]  This is how the Slush Fund bill’s sponsor, Ben Sasse (R-Neb,) put it shortly after the 2016 election: “We are going to repeal and replace Obamacare but, in the meantime, the last thing Americans need is for the Obama Administration to sneak in one last bailout on its way out the door.”[35]  According to an article written at about the time Senator Sasse made these remarks, the Justice Department was vigorously defending the risk corridor suits, but the Department of Health and Human Services was “also willing to discuss resolving those suits.”[36]

Did the DFS miss an opportunity to compromise and resolve issues surrounding the risk corridor and reinsurance programs during the Obama Administration?  We don’t know because, despite Superintendent Vullo’s boasts of full transparency, so little information has been provided about Health Republic’s loss corridor claims, to the public, Health Republic’s policyholders, or even the Court overseeing the company’s liquidation.


  • [1] A video of the Roundtable on Health Republic’s demise may still be viewed on the website for the New York State Senate Insurance Committee.
  • [2] The New York Senate Health and Insurance Committees invited to the Roundtable representatives from New York State Conference on Blue Cross and Blue Shield Plans, the President and CEO of Health Now New York, the President of the Medical Society of the State of New York, the President of the New York Health Plan Association, the Executive Director of New York Department of Health, and an Acting Deputy Superintendent of Insurance and head of DFS’s Health Bureau – Troy Oeschner.
  • [3] In June 2015, Benjamin Lawsky, stepped down as the first Superintendent of the newly-created New York Department of Financial Services.  Anthony J. Albanese, then a  partner with Weil, Gotshal & Manges, had  joined the DFS as Lawsky’s chief of staff.  After Mr. Lawsky departed, Albanese served as interim-Superintendent while Governor Cuomo searched for a successor Superintendent.  In October 2015, Mr. Albanese advised DFS staff that he had accepted a position outside government, but would stay on to ensure a smooth position.
  • On January 25, 2016, Governor Cuomo nominated Maria T. Vullo, a partner with Paul Weiss Rifkind Wharton & Garrison, as Lawsky’s successor.  Ms. Vullo stepped in at the DFS and Mr. Albanese departed, but the New York State Senate did not confirm Ms. Vullo as the DFS’s second Superintendent until June 15, 2016.  Mr. Albanese subsequently joined the New York Stock Exchange as its Chief Regulatory Officer.
  • [4]
  • [5] A videotape of the confirmation hearing  remains on the Insurance Committee website.
  • [6]  J. LaMantia, Lawsky’s replacement takes on Senate Republicans at confirmation hearing, Crain’s New York,  June 8, 2016,
  • [7] A copy of the Senators’ letter may be found on the Health Republic website under Court Docket, Item 70.
  • [8] The September 30, 2016 balance sheet appears on the Health Republic website under Key Documents: Balance Sheet. The $432 million loss corridor payment due from the federal government is listed as an “Accrued retrospective receivable” and then (backed out) of the balance sheet.
  • [9] December 13, 2016 letter from Senators Seward and Hannon, p. 2.
  • [10] Letter from DFS Superintendent Maria T. Vullo to Senators Hannon and Seward, dated January 25, 2017.  I attached a copy of the Superintendent’s January 25th letter to my letter to the Court e-filed on March 31, 2017.  My letter and the January 25th letter from the Superintendent are now posted on the Health Republic website under Court Docket Items 90, 91, 92 and 93.
  • [11] I summarized the claims adjudication procedure in Curious Liquidation: Part 6.
  • [12] Curious Liquidation: Part 6.
  • [13] Vullo Letter, p. 2.
  • [14] Vullo Letter, p. 3.
  • [15] From May 11, 2016 through July 31, 2017, the Garden City Group has been paid $766,366 to operate the website and call center.  See Vendor Expenses summary posted on the Health Republic website under Key Documents: Paid In Expenses – 2016 and 2017.
  • [16] Vullo Letter, p. 3.
  • [17] Justice Edmead: “I would like the administrative costs and the related agreements to those administrative costs posted so people . . . can see [these administrative costs], since you say the likelihood of reaching beyond the policy claims . . . would leave very little. * * * I think that everything that’s being covered or spent should be transparent. * * * I want administrative costs posted [so] that I can link into it and see who is getting what.”  July 28, 2016 Trans., pp. 7-8; see also Curious Liquidation: Part 5.
  • [18] Oct. 11, 2016 Trans., pp. 42-46.  Transcripts of all Health Republic Court conferences and hearings are posted on the Health Republic website maintained by the Garden City Group. See also, Curious Liquidation: Part 6.  Note that while the Superintendent in her answers to questions during the February budget hearings referred to an effort to update the DFS website, the Bureau’s website contains a fraction of the information about other liquidated New York insurers that one can find on the Health Republic website operated by the Garden City Group.
  • [19] Maria T. Vullo Written Testimony Delivered to the Legislative Fiscal Committees on the State Budget – Health, February 16, 2017 (Vullo Testimony).
  • [20] This presumably refers to Truven Health Analytics, Inc. recently purchased by IBM (Truven/IBM).  A copy of Truven/IBM’s contract with the Liquidator may be found on the Health Republic website along with other vendor contracts.
  • [21] This presumably refers to POMCO, Inc., which administered claims for Health Republic before it failed, during the six-month interregnum between the board’s resignation and the beginning of the liquidation, and then during the liquidation proceeding itself.  The POMCO, contract purportedly terminated on December 31, 2016, but the Bureau told Justice Edmead in January that the Liquidator contemplated yet another contract with POMCO in order for POMCO to work with Truven/IBM in connection with Truven’s audit of POMCO’s adjustment of Health Republic’s 700,000 pending claims.  January 11, 2007 Trans., pp. 17-19, 24-26.
  • [22] Vullo Testimony, p. 3.
  • [23] Vullo Testimony, p. 15.
  • [24] Curious Liquidation: Part 2.
  • [25] According to a recent filing in a loss corridor suit brought in a U.S. District Court, at least nineteen risk corridor cases have been filed in the Court of Federal Claims.  See Health Republic Ins. Co. v. United States, No. 16-259C; First Priority Life Ins. Co. v. United States, No. 16-587C; Blue Cross and Blue Shield of North Carolina v. United States, No. 16-651C; Moda Health Plan, Inc. v. United States, No. 16-649C; Land of Lincoln Mutual Health Ins. Co. v. United States, No. 16-744C, appeal docketed, No. 17-1224 (Fed. Cir. Nov. 16, 2016); Maine Cmty. Health Options v. United States, No. 16-967C; New Mexico Health Connections v. United States, No. 16-1199C; BCBSM, Inc. v. United States, No. 16-1253C; Blue Cross of Idaho Health Service, Inc. v. United States, No. 16-1384C; Minuteman Health Inc. v. United States, No. 16-1418C; Montana Health CO-OP v. United States, No. 16-1427C; Alliant Health Plans, Inc. v. United States, No. 16-1491C; Blue Cross and Blue Shield of South Carolina v. United States, No. 16-1659C; Neighborhood Health Plan, Inc. v. United States, No. 16-1659C; Health Net, Inc. v. United States, No. 16-1722C; HPHC Ins. Co., Inc. v United States, No. 17-87C; Medica Health Plans v. United States, No. 17-94C; BCBS of Kansas City v. United States, No. 17-95C; Molina Healthcare v. United States, No. 17-97C.  Notice of Supplemental Filing (February 2, 2017) in Gerhart v. U.S. Department of Health and Human Services, Case No. 4:16-CV-00151 (S.D. Iowa) (Gerhart v. U.S.).  Since this filing, the Gerhart v. U.S. case itself was dismissed for lack of subject matter jurisdiction, Gerhart v. U.S., 2017 WL 1019816 (S.D. Iowa March 16, 2017), but at least one more Federal Court of Claims case has been filed. A. Moussako, SD Insurer Seeks $8.9M In ‘Risk Corridor’ Payments (March 17, 2017),
  • [26] Moda Health Plan, Inc. v. United States, 2017 WL 527588 (Fed. Cl., February 9, 2017).  Moda Health is not in liquidation.
  • [27] Presumably this refers to a class action commenced on behalf of Health Republic Insurance Company (Oregon), another not-for-profit health insurer formed under the ACA by the Freelancers Union.  A Court of Claims judge recently denied the federal government’s motion to dismiss that action for lack of subject matter jurisdiction. Health Republic Ins. Co. v. United States, 129 Fed. Cl. 757 (2017).
  • [28] See National Bondholders Corp. v. Joyce, 276 N.Y. 92, 11 N.E.2d 552 (1937).
  • [29] Curious Liquidation: Part 6; Oct. 11, 2016 Trans., pp. 43-44.
  • [30] Jan. 11, 2017 Trans., pp. 41-42.
  • [31] Letter from Special Deputy Superintendent Axinn to Justice Carol Edmead, dated March 24, 2017 (Axinn Letter), a copy of which now appears on the Health Republic website at Court Docket, Item 89.
  • [32] Superintendent Vullo’s Testimony Delivered to the Legislative Fiscal Committees on the State Budget – Health, February 16, 2017, p. 15.
  • [33] This May 8th conference is discussed in Part 12.
  • [34] S. Livingston, GOP lawmakers move to bar Obama administration from settling
    risk corridor lawsuits
    (S. Livingston,  GOP lawmakers),
  • [35] Id. At the same time, GOP senators were writing  to  then-Secretary Burwell at HHS asking for information about how HHS/CMS was handling the litigation surrounding the risk corridor program.
  • [36] S. Livingston, GOP lawmakers.
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