With healthcare reform looming, nHealth was losing millions

The financial records of nHealth, the Richmond-based startup health insurer that said last week it was shutting down as a result of federal healthcare reform, show it was losing millions in its first year and a half of existence.

According to filings by nHealth with the National Association of Insurance Commissioners and the Virginia State Corporation Commission, the company has lost $10.6 million since it opened for business in 2008, adding to the complexity of the political debate being waged on the internet over whether healthcare reform is to blame for the young company’s demise.

Since an internal nHealth document obtained by Richmond BizSense uncovered last week that the company claims it must shut down as a result of proposed regulations within the recently passed healthcare reform bill, the story has found its way into the wild world of political blogs, even going as far as Politico and Fox News.

The left versus right battle that has erupted since the nHealth story was first reported by BizSense, calls into question whether the company was indeed the first victim of what right wing calls “ObamaCare,” or whether nHealth’s business model, which revolved around offering high deductible plans and the use of health savings accounts, was simply inadequate to survive the tumultuous times in the insurance world.

nHealth’s losses were nothing unexpected, according to its CEO Paul Kitchen.

Kitchen told BizSense in a previous story that his company was “growing,” but gave no other detail into its financial state.

nHealth, may have been slowly working its way out of the red, having lost $5.6 million in 2008 and $4 million in 2009, according to the company’s financial statements. Its loss for the first quarter 2010 was $966,472.

Kitchen said losses early on were factored into the company’s initial business plan. It is after all, a startup company trying to survive one of the worst economic downturns in history.

“Not many businesses start up and make a profit from day one,” Kitchen said.

Asked if its initial business plan forecasted a timeline for nHealth to reach profitability, Kitchen said, “We had numerous forecasts.”

Those forecasts, he said, “They were always moving targets.”

A document nHealth filed with the NAIC showed enrollment in its plans grew from 101 in 2008 to 1,488 in 2009.

“It was moving in the right direction,” Kitchen said.

Making the call to shut down nHealth because of proposed politically-charged changes that have yet to go into effect was a business decision, Kitchen said.

“The healthcare law changed the rules,” he said. “We assessed the rules and made a business decision.”

“The politics — I’ll let people make their own judgments about it.”

The changes in question would require a tighter medical loss ratio for insurers, forcing them to spend a defined percentage of the premiums they collect specifically on medical claims, rather than unrelated expenses.

That proposed ratio would require more capital than nHealth has or was able to raise. The company raised $12 million at its inception. And according to documents filed with the Securities and Exchange Commission filed by nHealth Holding Corp., the parent company for nHealth Inc. and subsidiary health insurers ACMG of Kentucky and ACMG SC, it raised $75,000 in May 2009 and $2.5 million earlier this year.

A section of nHealth’s 2009 annual report dated March 31, 2010, shows the company was keeping an eye on the healthcare bill that had been signed into law that same month, though it didn’t express concern at the time that the bill’s provisions would force it out of business just a few months later.

“Recent passage of healthcare reform at the federal level is being evaluated at this time,” the company said in the narrative filed with the NAIC.

“While some provisions affecting health plans will take effect in a matter of months, the significant provisions of the legislation will not take effect until 2014,” it said further. “Many of those provisions will be addressed by regulation so any specific impact cannot be determined at this time.”

That statement was from March 31. The company informed its agents in a letter on June 2 that “The most prudent and sensible conclusion for us is to discontinue the sale of healthcare policies and withdraw from the healthcare business.”

Further reading:

A Richmond startup tries to cut health care costs

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14 Comments on "With healthcare reform looming, nHealth was losing millions"

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Alan Slabaugh

Incredibly irrelevant article. Why don’t you do a story about how Martins lost millions in the first week of ownership in Ukrops, because i am sure they did.

In starting a Health Insurance company the Chicken must come before the egg.


How about some background information? What the heck was their business model? What exactly did they do? Health insurance, sure, but how were they different from Anthem? Or was it just an Anthem-like startup? Where did they get their customers from? Employers? Private enrollments? Maybe it was a bad idea for a business. The reporter needs to always assume this is the first encounter with this story for the reader and provide a background. How did their coverage compare to similar businesses?

Tom Roberts

As you note, it sounds like they were making progress towards lowering the burn. The substantial change to the regulatory outlook was likely a pretty critical factor to the company’s investors and their expectations of earning a return on their current and future capital invested reflective of the risk created by the changed regulatory landscape. Sad to see a promising company derailed by government regulatory intervention, as well intentioned as it may be. Another example of unintended consequences of “regulatory reform”.

Steve Gillispie
If this report is as misleading and poorly conceived as we believe, this article is an incredible disservice to small business in Virginia. Our company of 35 employees provides full Health Insurance coverage to all our associates. Over the past 5 years we had experienced extraordinary increases (30% to 40%) from Anthem. Anthem asked for an increase from app $96,000 to $140,000 with less insurance but agreed to hold at the $90 range if we went to a high deductible plan and assumed the risk on the first $30K. We did that and the next year they said they wanted… Read more »

The ramifications will be felt for long time and while some may be positive, the negative aspects will weigh them down. I’m sure this article is the first of many.


Tom Bowden
Steve Gillespie – Excellent Post! The lack of government enthusiasm for the high deductible/catastrophic model is really simple. If you start (as they do) form the proposition that government control (i.e. regulation) is good, then more is better. By carving off the vast majority of health care transactions – prescriptions, check-ups, etc. and leaving them completely up to the consumers, the insurers and the regulators (some would say that is redundant) would pass up huge opportunities for control, by regulating prices, adjusting “cost-sharing” (that’s reform-speak for co-pay – as if the consumer doesn’t ultimately pay the whole cost anyway –… Read more »
Jeff D. Smith, III
As an nHealth subscriber, having left Anthem after 30 years of paying higher prices each year for stock holders, nHealth saved our company $11,000 the first year. HSA’s with high deductibles is nothing more than health care back in the 50’s and 60’s. (A hospital plan.) In this case you can set aside tax free money in a savings account and you pay for routine visits. Like people did back then. By paying cash for these visits out of our savings account, physicians have discounted as much as 50% of the cost of visit’s to us. DID YOU GET THAT—50%… Read more »
Casey Quinlan
This is a perfect example of the law of unintended consequences – in an attempt to spur health care reform, the Feds missed the boat completely and are killing off the best avenue to reform: consumer-driven health plans like nHealth. There are two big issues in health insurance that are desperate for viable answers: 1. Why is health insurance still strapped on to “job” employment when the market is in deep need of affordable individual/family policies? This only raises the burden on business owners, without delivering any kind of real value to consumers. 2. Until those consumers are put in… Read more »
Donald Judy
I agree that Steve Gillespie’s post was very interesting. But an awful lot seems to depend on the assumption that nHealth was “economically viable as a business” (from 4th paragraph). The point of this article seems to be that that assumption is more questionable than originally thought. I also agree somewhat with Casey Quinlan’s 2 points. Giving people a personal incentive to control costs seems like a powerful response to the current problem in which patients (and doctors) choose treatments regardless of the cost. However, there are important differences between a pure consumer-in-the-marketplace model and the context of health care.… Read more »
Alan Slabaugh
@Donald, With a “High Deductible” plan like nHealth, we are talking about a $1,500 deductible, with 100% coverage thereafter for inpatient, outpatient, and prescriptions. Considerably less exposure than you have offered by other HMO’s and PPO’s. The difference is that you have no coverage except for in network discounts before your deductible. If you like analogies pertaining to cars try this one. Would you pay twice as much for your car insurance if it covered your oil changes and regular maintenance for a $30 copay? Probably not, I know I would not. Do some research on the plans we are… Read more »
Alan Slabaugh

Should not have been typing that on my droid.

99 times out of 100 you are better off paying less money to the insurance company and putting the savings in a savings account like an HSA.

John Sams
Mr. Gillispe, it is easy to save someone on premiums if you have not priced your product correctly. I wonder how much nHealth lost on your business. Could it be that in the rush to add members, they did not correctly set the rate for the pools of employees they were insuring? Mr. Slabaugh I have done some research, this type plan is being offered across the country. The places it and the insurance company do well are where the groups are young healthy professional workers who make enough money that they want to gamble that they will not become… Read more »
Steve Gillispie
I find it dismaying how difficult it seems to be for people to accept that there are alternatives to the traditional big company model far superior to government rules, that nHealth was a poster-child for at least one alternative, and that what went wrong was not nHealth’s model but the introduction of very flawed legislation combined with an industry which is going to fight vigorously to preserve what amounts to predatory practices in supporting an incredibly bloated, inefficient, and unaccountable Hospital industry. It seems we should be able to seek a way for non-governmental entities to solve our problems without… Read more »
Alan Slabaugh

John, You are incorrect in your assumptions about HDHP’s and, if you are a business owner, I will gladly come visit and get you up to speed. The last thing we need is for more misinformation spreading around about the best option available in our insurance market.