The ACA's Consumer Oriented and Operated Plans, (co-ops) were established in 2013 as an alternative health insurance option for consumers. With qualified health plans for individuals and small group markets, these member-run entities were to provide much-needed competition in the marketplace.
However, it seems major financial hurdles to their success started early. The original 23 nonprofits were slated to receive $6 billion in federal low-interest loans, which was later squeezed down to $2.4 billion. Congress also cut a three-year fund meant to cushion insurers covering sicker, newly insured Americans – the “risk corridor” program – from $2.87 billion insurers requested to $362 million.
In what many consider too restrictive guidelines from the get-go, the legislation didn’t permit any type of private funding for the co-ops. Anyone previously affiliated with another health insurer was not allowed to be on their boards. Earler this month, the CMS lifted these restrictions to allow the remaining 11 co-ops to seek private capital. But is this new provision too little too late?
The co-ops’ downward spiral
The first co-op failure came in December 2014 in Iowa, prompting federal audits of all co-ops’ finances. An audit from HHS' Office of Inspector General last year found co-ops lost about $200 million in the first six months of 2015 and 13 fell short of enrollment goals. Shortly after Iowa, Nebraska, New York, Colorado, Kentucky and South Carolina, to name a few, followed suit and closed their doors. The 12 shuttered co-ops left 740,000 Americans looking for new coverage, according to a Commonwealth Fund report.
This has also affected providers – many of which haven’t been paid by the out-of-business co-ops. When New York’s co-op, Health Republic Insurance, folded in September 2015, it owed hospitals across the state more than $165 million. While most states have guaranty associations -- protections for insurance customers issued by an insurer that has become insolvent -- as safety nets when insurance companies fail, New York is the exception. It’s the only state where the guaranty association does not cover health insurance company claims. This risk of insolvency has left many providers wary of contracting with co-ops.
Earlier this year, CMS’ acting Administrator Andy Slavitt, said the agency was working to recoup about $1.2 billion in federal funding and would continue its’ monitoring of the 11 remaining co-ops. Another potential financial headache is if a co-op fails but later records profits, it could lose its' 501(c)(29) tax-exempt status and be served with major tax bills.
Measuring Risk
Sabrina Corlette, a research professor at Georgetown University’s Center on Health Insurance Reforms, told Healthcare Dive via email, “Loss of risk corridor funding was a final blow for many of the co-ops that failed last year, but going forward this is less of an issue. Getting risk adjustment right is far more important to their long-term sustainability.”
Risk adjustment is a program whereby insurers that enroll more high-risk customers receive payments from insurers with a lower share of this population. But, Corlette last year explained in a Commonwealth Fund report co-ops may struggle with risk adjustment because it requires being able to decipher an accurate risk profile of enrollees. “This means building the data capacity to track and record every diagnosis of every member of the company’s plans,” Corlette wrote. Overall, this is an expensive task. Without that data, co-ops will appear to have healthier members than they actually have. This will skew the plan’s average risk score, which represents the plan’s predicted expenses.
Challenges Remain
Corlette said co-ops still face some big challenges and there is no margin for errors in pricing. “Pricing is really tricky – companies have to cover their costs but also remain competitive. They have to set their prices almost a full year before they’re implemented – and they’re locked in for a year, even if they attract a different risk pool than they expected,” she explained.
However, Maryland’s Evergreen Health recently announced its first profitable quarter, which president and CEO Dr. Peter Beilenson told Healthcare Dive is partially attributable to its business diversification. With a current enrollment of 40,000 divided into 25% individual plans, 65% small group plans, and 10% large groups, along with what Beilenson termed “appropriately priced plans,” the co-op has a premium revenue of $40.9 million.
Admitting he’s been “quite critical of CMS,” Beilenson said the agency still deserves credit for their latest policy changes. “Although a little bit late, it’s certainly the appropriate actions to have taken and we’re very pleased CMS did so.”
Beilenson mentioned the new ruling also includes a discussion about “allowing states to have more say in how risk adjustment is metered out,” and “hopefully adjusting them downwards – at least temporarily for the next few years. If we can raise capital and have the risk adjustment managed, that’s what we need.”
Despite pressure on the federal government to shut down all the co-ops, Beilenson and others remain optimistic. “Again, even where there are struggling co-ops, it’s helped to have competition in the market, and it’s been shown in study after study that where there are co-ops, premiums have gone up less than in other states. So, I think as long as they can remain solvent, it’s premature to pull the plug on the program.”
Corlette agreed but added it’s important for the federal government “to keep close tabs on the co-ops. If solvency is in question for a company, then quick action from both federal and state officials will be needed to ensure as smooth a transition as possible for the enrollees." Dr. Eil Adashi, a professor of medicine and obstetrics and gynecology at the Warren Alpert Medical School at Brown University, who co-authored a JAMA article on co-op trends told Healthcare Dive co-ops “should be allowed to flourish. They are the only not-for-profit insurance companies out there which are by the people and for the people.”