With 10 of 23 health cooperatives down around the U.S., Evergreen Health Cooperative in Maryland is among those 13 that have escaped failure thus far.
CEO Peter Beilenson says he won’t be surprised if a few more failures are announced before the Nov. 1 start of open enrollment. Utah announced its closure yesterday. The fast-approaching date to make a decision on whether to operate in 2016 has been the reason for the recent pileup, he says.
Those that do make it into open enrollment will have undergone a significant amount of scrutiny and will be unlikely to fail next year, he says.
What went wrong for so many?
“If you look at the [ten] that have gone out of business, the majority of them were the high enrollers in the first year,” Beilenson says.
He says they typically got the vast majority of their enrollment on the exchanges from individuals, who were high cost users. They priced aggressively and got the market share they wanted, but didn’t have the reserves of the big companies.
“They were depending on the three Rs – reinsurance, risk corridors and risk adjustment,” Beilenson says.
As far as risk adjustment, the assumption was if a large percentage of an insurer’s population was sick, they would be a receivable rather than a payable, but that turned out not to be true. Instead of receiving risk adjustment, 20 of the 22 co-ops operating at the time actually had payables, Beilenson says, making risk adjustment an unforeseen hit.
“They were then depending on the risk corridor to make them relatively whole,” he says, “but because the feds didn’t anticipate there would be vastly more requests for risk corridor than paying in, they only paid one eighth the amount they promised.”
He notes Colorado as an exception, where the co-op’s closure appears to have involved state political issues, but says most of those that folded did so for the above reasons.
“If you were counting on the federal government to come through with the three Rs, then what they did makes sense,” Beilenson says.
While that was a big assumption, Beilenson suggests CMS was partly responsible. “I do think CMS effectively misled the insurers across the board,” he says. While CMS had communicated they wouldn’t be paying 100% of the risk corridor funding, “They never implied they would be paying down around 10 cents on the dollar,” he says.
How Evergreen steered clear of collapse
“We diversified,” Beilenson says.
In addition, there was some serendipity in that the individual exchange in Maryland crashed at the beginning, limiting early enrollment, and Evergreen did not have the lowest prices.
“We purposely did not aggressively price, we appropriately priced,” Beilenson says, adding the co-op took some flak for not trying to get a better share of the market. As a result, they got very few people on the individual exchange and CareFirst, the Blues in Maryland, got 94.5% of the market.
Evergreen chose to be nimble and went to the small group market, so by the end of the first year they had enrolled 12,000 people – 11,500 of whom were in the small group.
This year they have been growing an average rate of a few thousand per month and have 26,000 now, and expect to be at 30,000 by the end of the year, Beilenson says. They are selling to the large group now, as well.
“I would argue that we appropriately priced on the individual exchange each year, including this year when we got 4,500 members on the individual side, and we diversified our book of business to small group and now large group, which is going to be at least as profitable,” Beilenson says.
He says the risk corridor and risk adjustment issues affected them by about one to two million dollars, as opposed to the tens of millions some others faced.
Beilenson adds the co-op has a very low MLR and has been breaking even the last couple of months.
“We don’t have any kind of a cash problem at all. We’re at 700% RBC, the solvency measure, which is well above what the feds require and way above what the states require, and we have $55 million in assets and a very favorable population,” he says. “We actually have some of our solvency money yet to be drawn down which is not the case with almost any of the other co-ops.”
He notes part of their success is also due to support from the state insurance department, which he adds comes from a Republican administration.
“Since the state are the true regulators of any particular insurance company, having their support has made a huge difference, and gives us a lot of stability and ability to face off with CMS,” Beilenson says.
Beilenson suggests all the co-ops that make it into open enrollment for 2016 will have strong financials. “With states getting skittish and feds covering themselves, I don’t think they would allow a nonviable co-op to go forward because it would be terrible publicity,” he says.
He says he’s confident about the long-term sustainability of the remaining co-ops as well.
He suggests there will be need down the road to have some ability to raise capital and says they’re talking to CMS about it. “The only concern long-term, I would say, is the ability to raise capital and that’s totally at the discretion of CMS’ rules,” he says. He’s optimistic the rules will allow it, and the majority of remaining co-ops will be successful.