The hotly debated healthcare reform bill signed into law in March has killed a local insurance company.
At least that’s according to a brief letter Richmond-based nHealth sent to insurance agents explaining the reason behind the shuttering of the once promising local startup.
“I wanted to share with you the decision by nHealth’s board of directors to exit the health insurance market,” wrote James Slabaugh, executive vice president of the Richmond-based insurance company that employed about 50 people. (Many of those were at an office in Ohio).
The letter, obtained by BizSense, was sent June 2 to nHealth insurance agents. (You can read it here).
The letter explained that “considerable uncertainties” in the health insurance market caused by the recent federal healthcare legislation made the two year-old company’s business model unsustainable.
“Despite a product that was gaining increasing acceptance among companies throughout the Commonwealth, the uncertainties in the regulatory climate coupled with new demands imposed by national healthcare reforms have made it challenging to sustain the level of sales required to remain viable over the long run,” Slabaugh said in the letter.
According to nHealth CEO Paul Kitchen and Paul Nezi, one of the company’s original investors and former board members, regulatory changes the company believes are coming as a result of the legislation will require levels of capital beyond what nHealth’s business model can sustain.
Nezi said nHealth tried to raise additional capital but was unsuccessful.
“People got skittish about writing any more checks,” Nezi said. “Because of that uncertainty, would you invest a few more million dollars of your money in a startup if you don’t know what the rules are going to be?”
That left company with only one choice.
“The most prudent and sensible conclusion for us is to discontinue the sale of healthcare policies and withdraw from the healthcare business,” Slabaugh wrote in the letter.
Founded in 2008, nHealth was built around a high deductible insurance plan model that utilized health savings accounts and kept costs down making consumers more involved in their healthcare decisions.
Nezi and other investors helped fund the company out of the gate with a $12 million investment, he said.
“Initially we raised $12 million in no time from local investors and one large investor on the West Coast,” Nezi said.
The company also raised additional capital a few months ago he said.
And for a while, the investment seemed to be paying off.
nHealth was recognized in October 2008 by the Venture Forum a promising company to watch and Nezi said the model was gaining acceptance in the market.
“Our results over the last couple of years prove the product does work,” Nezi said. “I believed and still believe in the product design or I wouldn’t have invested in the company.”
Kitchen, former CEO of the Medical Society of Virginia, wouldn’t say what kind of revenue the company was generating, only to say it was “growing.”
The linchpin within the legislation for nHealth, Kitchen said, was related to pending requirements that would raise loss ratios for insurance companies, a ratio related to premiums versus claims.
Kitchen said the quick decision was based on a long-term outlook that showed healthcare reform would have a fatal effect on nHealth.
“You don’t make decision like this without good reason,” Kitchen said. “We didn’t do it just to prove any points.”
As for shutting the company down, Kitchen said an official closing date is difficult to determine. He said the company will send out letters to its customers but will likely let brokers spread the word first. The company is also working to help customers transition smoothly into coverage from other firms.
The letter to agent stated nHealth has “ample capital to pay claims” for business on the books through the end of the year. It also said the company will continue to pay commissions on business “as long as it remains on nHealth’s books.”
Kitchen said it’s unclear how much, if any, investors will get back.
Michael Schwartz is a BizSense reporter. Please send news tips to [email protected].
The hotly debated healthcare reform bill signed into law in March has killed a local insurance company.
At least that’s according to a brief letter Richmond-based nHealth sent to insurance agents explaining the reason behind the shuttering of the once promising local startup.
“I wanted to share with you the decision by nHealth’s board of directors to exit the health insurance market,” wrote James Slabaugh, executive vice president of the Richmond-based insurance company that employed about 50 people. (Many of those were at an office in Ohio).
The letter, obtained by BizSense, was sent June 2 to nHealth insurance agents. (You can read it here).
The letter explained that “considerable uncertainties” in the health insurance market caused by the recent federal healthcare legislation made the two year-old company’s business model unsustainable.
“Despite a product that was gaining increasing acceptance among companies throughout the Commonwealth, the uncertainties in the regulatory climate coupled with new demands imposed by national healthcare reforms have made it challenging to sustain the level of sales required to remain viable over the long run,” Slabaugh said in the letter.
According to nHealth CEO Paul Kitchen and Paul Nezi, one of the company’s original investors and former board members, regulatory changes the company believes are coming as a result of the legislation will require levels of capital beyond what nHealth’s business model can sustain.
Nezi said nHealth tried to raise additional capital but was unsuccessful.
“People got skittish about writing any more checks,” Nezi said. “Because of that uncertainty, would you invest a few more million dollars of your money in a startup if you don’t know what the rules are going to be?”
That left company with only one choice.
“The most prudent and sensible conclusion for us is to discontinue the sale of healthcare policies and withdraw from the healthcare business,” Slabaugh wrote in the letter.
Founded in 2008, nHealth was built around a high deductible insurance plan model that utilized health savings accounts and kept costs down making consumers more involved in their healthcare decisions.
Nezi and other investors helped fund the company out of the gate with a $12 million investment, he said.
“Initially we raised $12 million in no time from local investors and one large investor on the West Coast,” Nezi said.
The company also raised additional capital a few months ago he said.
And for a while, the investment seemed to be paying off.
nHealth was recognized in October 2008 by the Venture Forum a promising company to watch and Nezi said the model was gaining acceptance in the market.
“Our results over the last couple of years prove the product does work,” Nezi said. “I believed and still believe in the product design or I wouldn’t have invested in the company.”
Kitchen, former CEO of the Medical Society of Virginia, wouldn’t say what kind of revenue the company was generating, only to say it was “growing.”
The linchpin within the legislation for nHealth, Kitchen said, was related to pending requirements that would raise loss ratios for insurance companies, a ratio related to premiums versus claims.
Kitchen said the quick decision was based on a long-term outlook that showed healthcare reform would have a fatal effect on nHealth.
“You don’t make decision like this without good reason,” Kitchen said. “We didn’t do it just to prove any points.”
As for shutting the company down, Kitchen said an official closing date is difficult to determine. He said the company will send out letters to its customers but will likely let brokers spread the word first. The company is also working to help customers transition smoothly into coverage from other firms.
The letter to agent stated nHealth has “ample capital to pay claims” for business on the books through the end of the year. It also said the company will continue to pay commissions on business “as long as it remains on nHealth’s books.”
Kitchen said it’s unclear how much, if any, investors will get back.
Michael Schwartz is a BizSense reporter. Please send news tips to [email protected].
No surprise here. I guess we could compare the government mandated healthcare vs. small insurance companies to Walmart vs. mom & pop stores.
As a broker in the Richmond area I am very saddened by this news, as are many of the local businesses that took advantage of the most affordable insurance product in Virgninia. My nHealth clients and their employees were extremely satisfied with the product and are now outraged with this decision to pull out of the market. Now when I have to move them back to Anthem, Southern Health, Optima and the like, we will have to redesign their employer contribution strategy which will most likely cut into the hefty HSA contributions that my employers were able to contribute to… Read more »
Your reporter, Michael Schwartz, should seek comments from Senators Mark Warner & Jim Webb on their conscious decision to drive this entrepreneurial Virginia firm out of business.
I am sure that Speaker Nancy Pelosi and President Obama will find a way to explain how this demonstrates the Health Care Bill’s incentives for innovation in the health insurance market. I will be eager to hear it, because I sure can’t figure it out. Government imposes arbitrarily stringent operating ratios for a privately funded insurance company with a growing customer base, effectively prohibiting the company from writing new policies. Company investors correctly decide that further investment to meet those requirements does not make good business sense. Company shuts down. One less choice for consumers to choose how to provide… Read more »
They won’t be the last. As the small guys get pushed out of the market, the big guys will consolidate their positions and raise their rates. Americans will pay more for mandatory health insurance than they do for voluntary insurance now, and we’ll have Barry, Nancy & Harry to thank. Kind of like Larry, Moe & Curly.
@james – There’s no need to insult the Three Stooges like that. 🙂
I am not sure what the point is here. Government can’t do anything right and regulation is bad? This is the direct result of an unfortunate business plan, stop blaming the health care legislation. It would be impossible for any entity to come up with a functional business model that could anticipate the results of a legislative World War III to get something passed after 100 years of resistance to anything being passed. And clearly they did not consider that this issue would be on the table with a Democratic Congress and President when they started their company in 2008.… Read more »
Who would start a Health insurance company in the middle of the country’s move away from private, for profit health care management? Health is too important to be controlled by MBA’s. Good riddance nHealth, may Anthem and Southern Health follow you into obscurity very soon.
@Max – The question of whether the government can do anything right is up in the air. The performance of government run organizations today is nothing to be proud of and has been worrisome for decades. This is not about regulation, but a government mandate that all will have insurance or will be punished by fines. While it is true that a business this small took a risk in the current environment, that’s what all business entrepreneurs do, that’s how business grow and hire people. The environment for insurance companies has been hit with a bad economy for several years… Read more »
Irony,
The American public trusts the government to take care of them everyday: Medicare, FAA, FDA,
Dept of Agriculture, to name a few. I don’t know what are you talking about that Americans don’t trust the government. I think maybe 23% of Americans don’t trust the government. Probably about the same number as those who support the Palin / Tea Bag crowd.
@Bert – Tea Bag crowd? Did you really support your argument with insults? Really?? Please don’t comment. Racism and hate are not welcome here.
Huh? Who, other than you, said anything about racism or hate, those are your words, not mine.
My point is that Americans trust the government to do very important things every day. You cannot deny that.
Bert your insult towards the Tea Party and Palin voters is what destroyed your point to begin with. Helen Thomas found out the hard way what those innocent little words can do. Do not think that you can move from that point and unless the moderators remove it from the comments section it is now a permanent reminder of your feelings towards those you “disagree with”. Good day sir.
So we should repeal the entire health care bill, reinstate pre-existing condition exclusions, and go back to paying for uninsured people’s E.R. bills because some tiny, start-up business which offered weak coverage plans has decided to close shop? More than 50% of start-up businesses shut down within the first 5 years of operation. To say that the new health insurance reform law caused this is short-sighted and merely being used for ammunition by those who opposed passage of the new law. This young business probably decided to hang it up because the costs of health care will be escalating through… Read more »
@Frank – Well said, but do I see well established insurance companies closing their doors? Yes, it is very possible OR they merge into some kind of giant mega insurance company and we all know how much fun that would be. I think you hit the nail on the head when mentioning the ever increasing cost of health care in the next 20 years but the Boomers are only going to be part of the problem. As an employee of a convalescent healthcare facility and a baby boomer myself, I see a major problem with the caregivers also. Let me… Read more »
FYI – Politico has picked up on this company and its demise.
http://www.politico.com/news/stories/0610/38194.html#ixzz0qKXjOetN
And this is my favorite response from that article. My client and someone that actually knows what they are talking about. It is sad to see how uninformed and uneducated most of the people responding to that article are. “I don’t know whether this reporter is uninformed or deliberately misleading. This is not a company struggling with the problems of the health care imbroglio Nor do we know what he means. The big boys are reporting record profits. It’s those trying to break their monopoly which are struggling. nHealth is a company which had found a terrific solution, was taking… Read more »
In 2009 I moved 13 Richjmond companies to nHealth at their renewal. I just added up their combined pre-renewal rates and subracted their new nHealth rates. Combined annual premium savings of $459,044. That is $459,044 that is not being sent to the insurance company,but instead being deposited to employee owned HSA accounts, in most cases.
Alan,
Why don’t you look to the stop loss market if you are worried about losing your plan design and funding preference? 37 lives is more then enough. We are writing 15 life groups with $5000 specific deductibles taking business away from Anthem. Any Group on their 5K HSA that gets a bad renewal we show them how self funding can put an end to the endless double digit increases