It’s been a rough couple years for the ACA’s Consumer Operated and Oriented Plans. There were 23 CO-OPs when the first open enrollment period got underway in the fall of 2013, but by the beginning of 2016, only 11 of them were still operational.
By mid-July, four additional CO-OPs – in Ohio, Connecticut, Oregon, and Illinois – had failed. And in September, Health Republic Insurance of New Jersey stopped offering new plans and announced that their existing plans would terminate at the end of 2016, leaving just six CO-OPs remaining (unlike the other CO-OPs that have failed, state regulators in New Jersey are saying that it’s possible that Health Republic could be rehabilitated enough to return to the market in 2018).
The CO-OP failures have been due in large part to a combination of premiums that were too low, benefits that were too generous, enrollees who were sicker than anticipated, competition from bigger carriers with larger reserves, the risk corridor shortfall that was announced in the fall of 2015, and the risk adjustment payment announcements that were made in June 2016 (see below for a timeline of the closures).
Will outside investments prop up remaining CO-OPs?
But according to Inside Health Policy, at least two of the remaining six CO-OPs were moving forward in the summer of 2016 with efforts to secure outside investments. CMS relaxed several rules for CO-OPs earlier in 2016, making it more feasible for CO-OPs to obtain outside investments (details below).
- New Mexico Health Connections plans to work with Raymond James, a New York based investment firm, to raise “a substantial amount” of funding for New Mexico Health Connections. The CO-OP has noted that they have enough cash reserves on hand to cover their current costs, despite the fact that they had to pay $14.6 million to CMS for 2015 risk adjustment (details below), in addition to the $6.7 million they had to pay for 2014. But NM Health Connections is profitable as of fall 2016.
- Maryland’s CO-OP, Evergreen Health, was working to raise $15 million by mid-August. By July, the CO-OP had come to agreements with eight guarantors to front more than half of that $15 million. Evergreen owes CMS $24.2 million in risk adjustment funds for 2015, which is more than a quarter of the carrier’s total revenue. They filed a lawsuit to block the risk adjustment payment, but ultimately, Evergreen Health opted for the ultimate private investor arrangement, with plans underway for private investors to acquire the CO-OP as early as the first quarter of 2017, assuming state and federal regulators allow the sale to move forward. The company will still be called Evergreen Health, but it will be a for-profit entity, and will no longer be a CO-OP.
2015 risk adjustment: 9 of 10 CO-OPs owe payments
Under the ACA’s risk adjustment program, health insurers with lower-risk enrollees end up paying money to health insurers with higher-risk enrollees. The idea is to prevent insurers from designing plans that appeal only to healthy enrollees, and to ensure that premiums reflect benefit levels, rather than the overall health of a plan’s enrollees.
On June 30, 2016, HHS released data on risk adjustment numbers for 2015. Of the 10 CO-OPs that were still operational at that point, nine will have to pay into the risk adjustment program for 2015; only one remaining CO-OP – Community Health Options in Maine and New Hampshire – will receive a risk adjustment payment. Community Health Options will receive about $710,000 in risk adjustment funds.
Some of the remaining CO-OPs had begun to be profitable in early 2016 (details below), but all of the CO-OPs’ financial situations now have to be considered in conjunction with the fact that the CO-OPs will have to pay out the following amounts in risk adjustment payments, making their financial futures even more uncertain:
- Mountain Health CO-OP (Idaho and Montana): $481,000
- Oregon Health CO-OP (Community Care of Oregon): $914,000 (impending closure announced in July 2016)
- Common Ground CO-OP (Wisconsin): $1.9 million
- Minuteman (operates in Massachusetts and New Hampshire, but risk adjustment outlay will be for NH; MA operates its own risk adjustment program): $11 million (Minuteman has filed a lawsuit against CMS in an effort to “invalidate the illegal Risk Adjustment methodology and institute necessary changes immediately.”)
- New Mexico Health Connections: $14.6 million. NM Health Connections filed a lawsuit against HHS in August over the risk adjustment program, requesting that the program be halted until improvements could be made.
- Healthy CT: $13.4 million (impending closure announced in July 2016)
- Evergreen Health CO-OP (Maryland): $24.2 million (Evergreen filed a lawsuit to block the collection of the risk adjustment payments; a district judge denied the CO-OP’s request on July 21, and the CO-OP immediately appealed the decision; Between $2 million and $3 million of the risk adjustment payment was to be withheld by CMS in mid-July from funds owed to the CO-OP for premium subsidies and cost-sharing reductions, and the remainder of the payment had to be remitted by Evergreen by August 15). Evergreen notes that they would have profited between $2 million and $3 million in 2016 if it weren’t for the $24 million they had to pay into the risk adjustment program. As a result of the losses, they’re in the process of being acquired by private investors and converted to a for-profit entity.
- Land of Lincoln (Illinois): $31.8 million (the state ordered Land of Lincoln to withhold payment until if and when the CO-OP receives the money they were supposed to get in 2015 for the 2014 risk corridors program. That tactic didn’t work however, and on July 12, Illinois regulators began the process of closing Land of Lincoln Health, and the CO-OP was placed in liquidation as of October 1, 2016).
- Freelancer’s CO-OP (Health Republic Insurance of New Jersey): $46.3 million (in September 2016, regulators placed Health Republic in rehabilitation, and the CO-OP stopped selling new plans; the risk adjustment payment — which was much more than they had previously been advised it would be — was cited as a primary reason for the CO-OP’s financial instability).
HHS has proposed changes to the risk adjustment program for 2018, to make it more equitable and less burdensome for new, smaller carriers. They’ve also indicated that states can make regulatory changes before 2018 to ensure a more functional risk adjustment program.
New HHS regulations
In May 2016, after extensive input from stakeholders, HHS issued new regulations in an effort to help the remaining CO-OPs become financially viable. Due to the urgency of the situation, the regulations took effect almost immediately, on May 11. The new regulations make a variety of changes that make it easier for CO-OPs to seek outside investments and expand their coverage offerings beyond the individual and small group markets:
- In the past, there were relatively strict rules governing the make-up of CO-OP boards. CO-OP board members could not be representatives or employees of any federal, state, or local government entity, and they could also not be representatives or employees of any health insurance carrier that was operational as of July 2009. These rules were established to prevent conflicts of interest among CO-OP board members (for example, an employee of a competing insurance company might have a conflict of interest and might not make decisions solely based on the best interests of the CO-OP). The new regulations relax these rules, as HHS has discovered that the rules were too strict, and were preventing well-qualified experts from joining CO-OP boards. The new regulations allow government employees and representatives to be on CO-OP boards as long as they’re not in senior or high-level positions in the government. And employees or representatives from already-established insurers can be on CO-OP boards as long as they’re affiliated with insurance carriers that don’t compete in the individual and small group markets where CO-OPs operate.
- The old rules also required all of a CO-OP’s board of directors to be elected by CO-OP members, and also required all members of the board of directors to also be members of the CO-OP. The new regulations allow for some leeway here too. Only a majority of the board members must be elected by CO-OP members, and board members are no longer required to be members of the CO-OP. This allows outside entities that are providing loans, investments, and services to the CO-OP to have representatives on the board of directors, and will – in theory – make it easier for CO-OPs to attract new investments. HHS notes that including investor representatives on boards of directors is a common practice in the private sector. The old rules made it difficult for CO-OPs to find willing and qualified individuals to serve on their boards of directors, and the old rules allow them to seek outside experts to provide assistance via being on the board of directors. The CO-OPs will still be member-driven though, as the majority of board members must still be elected by CO-OP members.
- The ACA requires that at least two-thirds of a CO-OP’s policies must be issued in the individual and small group markets in the state where the CO-OP is licensed. Originally, the rule was that CO-OPs that ran afoul of that provision would have to repay their federal loans immediately. The new regulations allow for more leeway: CO-OPs that aren’t meeting the two-thirds rule don’t necessarily have to repay their loans immediately, but they do have to demonstrate a plan for getting into compliance with the two-thirds rule, and be acting in good faith to achieve that standard (most CO-OPs only operate in the individual and small group markets thus far, but HealthyCT in Connecticut is an exception – they offer large group plans in addition to individual and small group plans). The new flexibility allows CO-OPs to enter into other markets – including large group, Medicare, Medicaid, and ancillary products such as dental and vision, without having to be overly concerned with running afoul of the two-thirds rule and triggering an immediate payback requirement for federal loans.
- Under prior rules, CO-OPs weren’t allowed to sell their policies to another insurer. So when 12 CO-OPs failed by the end of 2015, the only option was to send their members back to the general market – on or off-exchange – to seek new coverage. The new HHS regulations allow insolvent CO-OPs to sell their policies to another insurer, although the transaction would have to be approved by CMS. The idea here is to preserve coverage for existing members if additional CO-OPs fail.
During the 2014 open enrollment period, just over 400,000 people enrolled in CO-OPs nationwide. That climbed to over a million by the end of the 2015 open enrollment period – despite the fact that CoOpportunity (Iowa and Nebraska) stopped selling policies in December 2014, and their once-robust enrollment (120,000 members) had dropped to about 2,000 people by mid-February 2015. While enrollment in private plans through the exchanges increased by 46 percent in 2015 (from 8 million people in the first open enrollment period, to 11.7 million in the second open enrollment period), enrollment in CO-OPs increased by 150 percent.
At the end of 2015, however, more than 500,000 of those enrollees had to switch to a different plan, as 11 of the 22 remaining CO-OPs closed at the end of 2015. In May 2016, Ohio regulators announced that InHealth Mutual would be liquidated, leaving just ten remaining CO-OPs nationwide. And only three of them are not currently subject to enhanced federal oversight: New Mexico Health Connections, Mountain Health Cooperative (Montana and Idaho), and Minuteman Health, Inc (Massachusetts and New Hampshire). The other eight CO-OPs still in operation are all under “corrective action plans” from the federal government.
Seven of the eleven CO-OPs that were still operational at the end of 2015 had at least 25,000 enrollees as of mid-2015, which is the minimum number that CMS says is necessary for financial solvency. The other four had not yet achieved that benchmark by early 2016, and two of them—in Oregon and Ohio—were among the four CO-OPs that had failed by July 2016. Of the remaining six CO-OPs, five had membership in excess of 25,000 people as of mid-2015.
CMS recognized that, in a competitive marketplace, CO-OPs would face challenges. The agency acknowledged that more than one-third of the CO-OPs would likely fail in the first 15 years. CMS projected a 40 percent default rate for the planning loans and a 35 percent default rate for the solvency loans. But with only eight of 23 CO-OPs still in business, the failure rate is 65 percent, after two and a half years of operations.
Have the remaining CO-OPs turned a corner?
At least three CO-OPs had a profitable first quarter of 2016: Evergreen Health CO-OP in Maryland, New Mexico Health Connections, and Minuteman Health in Massachusetts and New Hampshire. All three of those CO-OPs lost at least two million dollars in the first quarter of 2015, so ending the first quarter of 2016 in the black was a significant year-over-year improvement.
And although Community Health Options (Maine and New Hampshire) ceased enrollment in December 2016 in an effort to stem losses, their net income in the early months of 2016 has been higher than projected, and the reports from the Maine Bureau of Insurance have been positive about the CO-OP’s performance.
Community Health Options is the only remaining CO-OP that will receive a risk adjustment payment based on 2015 enrollment.
5 CO-OPs still operational in 7 states
The following CO-OPs are still selling policies as of mid-2016:
- MAINE Community Health Options This was originally called Maine Community Health Options, but the name was changed to reflect the carrier’s expansion outside of Maine. 44,000 people enrolled in coverage through the exchange in 2014, and 83 percent of them selected Community Health Options, making the CO-OP’s first year an amazing success. CHO expanded into New Hampshire for 2015, fueled by their initial success in 2014 and by a new loan from CMS. During the second open enrollment period, CHO once again dominated the Maine market, securing about 80 percent of the exchange market share. They also enrolled about 5,000 people in New Hampshire. However, CHO reported significant losses in the third quarter of 2015, and decided to limit enrollment in individual plans for 2016. Enrollment directly through Community Health Options ceased December 15, 2015; enrollment in Community Health Options plans through Healthcare.gov ceased December 26. The carrier ended 2015 with $74 million in losses – a far cry from the profitable year they had in 2014. In early 2016, Maine’s Insurance Superintendent proposed putting the CO-OP in receivership and cancelling a portion of its plans (about 20,000 members would have been transitioned to other coverage). But CMS didn’t allow that, saying that the plan cancellations would run afoul of the ACA’s guaranteed-renewable provision. The CO-OP is under increased oversight from the Maine Bureau of Insurance, but has been meeting or exceeding financial projections in the first few months of 2016. It is the only remaining CO-OP that received money—as opposed to having to pay out money—under the risk adjustment program for 2015. For 2017, Community Health Options will have an average rate increase of 25.5 percent in Maine, where bulk of their members live. They are exiting New Hampshire entirely at the end of 2016, and will revert to operating solely in Maine, as they did in 2014.
- MASSACHUSETTS and NEW HAMPSHIRE Minuteman Health Inc. (profitable in first quarter 2016, not under enhanced federal oversight) Enrollment exceeded 22,500 in the first quarter of 2016, and the CO-OP ceased its advertising campaign in an effort to avoid enrolling too many members. The CO-OP had a profitable first quarter of 2016, as opposed to the $3.8 million loss they suffered in the first quarter of 2015. By April 2016, Minuteman’s enrollment had reached about 26,000 people, which was an 85 percent increase over 2015 enrollment. More than 13,500 of Minuteman’s QHP enrollees are in New Hampshire, and the state also has almost 2,900 Premium Assistance Program (privatized Medicaid) members with Minuteman coverage.
- MONTANA and IDAHO Mountain Health Cooperative (not under enhanced federal oversight) Montana Health CO-OP started in Montana, and expanded to Idaho in 2015. The CO-OP seems to be on relatively solid financial ground. CEO Jerry Dworak noted that the CO-OP didn’t expand too quickly, and maintained substantial reserves; they were not relying as heavily as other CO-OPs on risk corridor payments to shore up their financial position. Average rates for Mountain Health CO-OP in Idaho increased by 26 percent for 2016, but the CO-OP does not appear to be facing the sort of financial challenges as many of its peers. For 2017, Mountain Health CO-OP has proposed an average rate increase of 22 percent, which is very much in line with the overall average rate increase proposed by all individual market carriers nationwide.
- NEW MEXICO New Mexico Health Connections (profitable in early 2016 and again by August 2016; not under enhanced federal oversight) The CO-OP had net earnings of $420,000 in the first quarter of 2016, as opposed to a loss of $2.3 million in the first quarter of 2015. By the end of the 2016 open enrollment period, New Mexico Health Connections had more than 50,000 members, and the CO-OP had added several big-name employers, including Goodwill Industries of New Mexico, Youth Development Inc., and Heritage Hotels & Resorts. The carrier has said that they weren’t counting on significant payments from the risk corridor program, so the shortage didn’t hurt them as much as it hurt other carriers. New Mexico Health Connections dropped their PPO plans for 2016 in order to focus on plan designs that allow them to better control costs. Several big-name carriers around the country have taken a similar approach in 2016, and PPOs are less common than they once were in the individual market. For 2017, New Mexico Health Connections will have an average rate increase of 33 percent, before any exchange subsidies are applied.
- WISCONSIN Common Ground Healthcare Cooperative – The approved weighted average rate increase for Common Ground for 2016 was 18 percent. The CO-OP had 23,629 enrollees in Wisconsin in 2015. For 2017, the CO-OP has proposed an average rate increase of 12.6 percent.
One additional CO-OP will still exist in 2017, but no longer as a non-profit, which is a central aspect of being a CO-OP:
- MARYLAND Evergreen Health Cooperative Inc. (transitioning to for-profit status in 2017) Enrollment was under 30,000 at the end of 2015, and had grown to 40,000 by March 2016. Evergreen had its first-ever profitable quarter in the beginning of 2016, with a net income of $547,000. That’s compared with a loss of $2.3 million in the first quarter of 2015. For 2015, Evergreen Health CO-OP lost money, as did all of the CO-OPs. But their loss was the smallest of the 11 remaining CO-OPs, at $10.8 million. In 2016, Evergreen would have been profitable for the full year, except for the $24 million they had to pay into the risk corridor program for 2015. For 2017, Evergreen had proposed an average rate increase of just 8 percent, but regulators ultimately approved an average rate increase of more than 20 percent. The CO-OP covers about 38,000 people in Maryland (as of fall 2016) and will continue to offer plans in 2017. But pending regulatory approval, they’re being acquired by private investors and will become a for-profit entity, losing their CO-OP status.
16 CO-OPs shut down
The following CO-OPs had closed or were closing imminently as of mid-2016:
- ARIZONA CLOSED Meritus Health Partners In a deviation from the norm, Meritus offered year-round enrollment outside the exchange until late summer 2015; tax credits were only available inside the exchange, and regular open enrollment dates applied to plans purchased in the exchange. Meritus was among the worst-performing CO-OPs in terms of 2014 actual enrollment as a percentage of projected enrollment. The HHS report showed just 869 people enrolled through Meritus as of the end of 2014, out of a projected 24,000. Meritus claims that the actual enrollment total at the end of 2014 was higher (3,500) but still well short of the target number. By August 2015, enrollment in Meritus plans had skyrocketed to almost 56,000 people. But just two days prior to the start of the 2016 open enrollment period, the Arizona Department of Insurance announced that Meritus could no longer sell or renew policies, and that existing plans would terminate at the end of 2015.
- COLORADO CLOSED Colorado HealthOP – The CO-OP got roughly 13 percent of the exchange market share in 2014 (the second highest of any carrier in the exchange), but they lowered their prices considerably for 2015, and garnered nearly 40 percent of the exchange’s enrollees during the second open enrollment period. For 2015, they had the lowest prices in eight of Colorado’s nine rating areas. Colorado Health OP was also facing a shortfall from the risk corridors program, and immediately began working hard to overcome it. But their efforts were not sufficient, and the Colorado Division of Insurance decertified them from the exchange on October 16, 2015.
- CONNECTICUT CLOSING HealthyCT – The CO-OP had 15.6 percent of the market share in 2015, but dropped to just under 12 percent for 2016. The CO-OP raised their premiums by an average of 7.2 percent for 2016. Unlike many other CO-OPs, HealthyCT wasn’t counting on the risk corridors payout that they were owed for 2014, so the shortfall wasn’t as significant for HealthyCT as it was for some of the other CO-OPs. Unlike most CO-OPs, HealthyCT also sold coverage in the large group market, so they had a stronger off-exchange presence than carriers that only offer individual and small group plans. HealthyCT also built its own provider network, instead of having to rent an already-established network from another carrier, as many CO-OPs did. But ultimately, the CO-OP succumbed to the $13.4 million bill that they received for the 2015 risk adjustment program. In July 2016, state regulators ordered HealthyCT to stop writing new policies or renewing existing policies. The CO-OP’s 13,000 individual market insureds (most of whom have coverage through the state’s exchange) will have coverage through December 31, but will need to pick a new plan during open enrollment. The CO-OP’s 27,000 employer-sponsored group enrollees will continue to have coverage through the CO-OP until their renewal date in 2017 if their 2016 renewal date was July or earlier. Groups that renew in August or later will have to switch to a different carrier as of their 2016 renewal date.
- ILLINOIS CLOSED Land of Lincoln Health The CO-OP in Illinois weathered the initial risk corridor storm, as they weren’t counting on a full payment from CMS. But they limited small group enrollments for the last two months of 2015, and they also capping 2016 enrollment at about 65,000 to 70,000 people (roughly a 30 percent increase over their 2015 membership) in order to sustainably manage their growth. Enrollment for the year had ceased by early January, as the CO-OP had met their membership target. During the first quarter of 2016, Land of Lincoln lost $7.1 million, up from the $5.3 million they lost in the first quarter of 2015. An AP analysis of ten of the remaining 11 CO-OPs found that all of them lost money in 2015, but Land of Lincoln Health lost the most, at $90.8 million. Nevertheless, the CO-OP is on the hook for a $31.8 million payment for 2015 risk adjustment. In late June, state regulators ordered Land of Lincoln to withhold payment until if and when the CO-OP receives the $73 million they were supposed to get in 2015 for the 2014 risk corridors program. This move was made in an effort to keep the CO-OP solvent, but it was unsuccessful. On July 12, regulators in Illinois announced that they were beginning the process of shutting down Land of Lincoln Health; the CO-OP will close on September 30, 2016. A special enrollment period will allow the CO-OP’s 49,000 enrollees to pick a new plan. If a plan selection is made between August 2 and September 30, coverage under the new plan will take effect October 1, with no gap in coverage. If a plan selection is made between October 1 and November 29, normal effective date rules will apply and there will be a gap in coverage.
- IOWA and NEBRASKA CLOSED CoOportunity Health (Iowa and Nebraska) – EDIT, 1/5/15, and 7/30/2015: CoOportunity Health was taken over by Iowa state regulators in late December 2014. Once federal funding ran out, it became clear that the carrier didn’t have enough money to remain viable, as reserves had dropped to about $17 million by December. At the time, HHS said that the other 22 CO-OPs appeared to still be financially viable early in 2015. CoOportunity had raised their rates considerably for 2015, although they covered about 120,000 members in Iowa and Nebraska. Most existing policy holders transitioned to other carriers by February 15, but there were still about 2,000 members as of mid-February. Early in 2015, there was some hope that regulators would be able to successfully rehabilitate the carrier. But by February 18, the Insurance Division announced that they would begin the process of liquidating the carrier before the end of the month, and the remaining insureds had to transition to other carriers by March 1.
- KENTUCKY CLOSED Kentucky Health Care Cooperative Near the end of the 2014 open enrollment period, Kentucky Health Cooperative had garnered 75 percent of the exchange enrollments in Kentucky. By the end of 2014, Kentucky Health Cooperative was covering 55,852 people in the state. The CO-OP had planned to expand into West Virginia for 2015, but backed out just a week before open enrollment over worries that their infrastructure wasn’t ready for the new influx of members. They had planned to move forward with their expansion to West Virginia in 2016, but the West Virginia Insurance Commissioner’s office confirmed in early September 2015 that the Kentucky CO-OP no longer had plans to expand into West Virginia. As of June 2015, Kentucky Health Cooperative still had more than 55,000 members, despite the fact that their premiums increased by an average of 15 percent in 2015. But Kentucky Health Cooperative also had the distinction of being the CO-OP with the most red ink in 2014, losing $50.4 million by the end of 2014 (although losses had diminished considerably in 2015; by the end of the first half of the year, losses totaled just $4 million). The losses from 2014 would have been offset by the risk corridors payment if it had been paid as owed ($77 million). Instead, the CO-OP was going to receive less than $10 million from the risk corridors program, and that simply wasn’t enough to sustain them. Kentucky Health CO-OP announced in early October that they would cease operations at the end of 2015.
- LOUISIANA CLOSED Louisiana Health Cooperative Inc. – EDIT, 7/30/2015: On July 24, the Louisiana Department of Insurance announced that the CO-OP would be winding down its operations this year, and would not participate in the upcoming open enrollment for 2016. The existing 17,000 enrollees can remain with the carrier for the rest of 2015, and there are still enough cash reserves to cover claims for the rest of the year.
- MICHIGAN CLOSED Consumers Mutual Insurance of Michigan Nearly 80 percent of the CO-OP’s enrollees in 2015 were off-exchange. Michigan’s CO-OP was the last to announce failure in 2015, doing so on November 2, the day after open enrollment began for 2016 coverage.
- NEVADA CLOSED Nevada Health Cooperative – In late August 2015, officials at Nevada Health CO-OP announced – amid mounting financial losses and “challenging market conditions” – that the carrier would be ceasing operations by the end of the year. The CO-OP had about a third of the individual enrollments in the Nevada exchange for 2015, but they had to switch to another carrier for 2016.
- NEW JERSEY CLOSING Health Republic Insurance of New Jersey (Freelancer’s CO-OP) – The CO-OP ended 2014 with 4,254 members. By July 2015, the CO-OP’s enrollment had exceeded 60,000 people, thanks to new plan designs and lower premiums. Rate increases for 2016 ranged from 9 percent to 18 percent. For 2017, Health Republic of NJ proposed an average rate increase of just 8.5 percent, but ultimately the carrier was placed in rehabilitation in mid-September, and had to stop offering new plans at that point. State regulators have said that it’s possible the CO-OP could return to the market in 2018, but it’s unclear how that would work from a financial standpoint. For the time being, all Health Republic plans in New Jersey will terminate on December 31, 2016.
- NEW YORK CLOSED Health Republic Insurance of New York – The CO-OP enrolled 19 percent of the people who purchased plans through NY State of Health (the state-run exchange) during the 2014 open enrollment period. Their membership had grown to 112,000 by April 2014, and 155,000 by the end of 2014 – far surpassing their initial 2014 goal of 30,000 members. In 2015, they again garnered 19 percent of NY State of Health’s private plan enrollees, and had total enrollment of about 200,000 people by the time regulators announced in September 2015 that the CO-OP would be closing. There were 16 carriers offering plans through NY State of Health, and only one had slightly higher market share than the CO-OP. But Health Republic of NY lost $35 million in 2014, and $52.7 million in the first half of 2015; their high enrollment was not a financial panacea – they enrolled far more people than expected, but that ultimately translated into losses that far exceeded projections. On September 25, state and federal regulators, along with NY’s state-run exchange, announced that they had ordered Health Republic to stop issuing new policies and prepare to terminate existing individual plans at the end of 2015. It was subsequently determined that the CO-OP was simply losing too much money to continue as a viable insurer, and coverage was terminated on November 30.
- OHIO InHealth Mutual CLOSING InHealth Mutual enrolled just 11 percent of their target membership for 2014. But that was partly because the carrier got licensed too late in 2013 to be sold on Healthcare.gov. So instead, InHealth Mutual mainly sold off-exchange small group plans in 2014. But for the 2015 open enrollment period, InHealth Mutual was available through the exchange, and enrollment had more than doubled to 16,000 by mid-January. However, during the first six months of 2015, InHealth reported $9.1 million in net losses. Ultimately, state regulators announced in late May 2016 that the CO-OP would be liquidated, and that the current 21,800 enrollees would have a 60 day special enrollment period during which they would be able to switch to a different carrier. Enrollees who remain with InHealth Mutual will have coverage through the end of 2016, but it will be through the state guaranty fund, which means it has a cap of $500,000 and would subject the enrollees to the ACA’s penalty for not having minimum essential coverage.
- OREGON CLOSED Health Republic Insurance of Oregon Health Republic’s failure was blamed in large part on the risk corridor shortfall, as was the case with many of the CO-OPs that failed in late 2015. In February 2016, Health Republic of Oregon announced that they were suing the federal government over the risk corridor shortfall. Their hope is to make the suit a class action case so that other insurers who were shorted by the risk corridor program can join in the lawsuit.
- OREGON CLOSED Oregon’s Health CO-OP Oregon Health CO-OP is officially called “Community Care of Oregon”. It had just 1,582 members at the end of 2014. By January 2015, their membership had grown to 10,000 people, and by April 2015, they said they were on track to hit 20,000 by the end of the year, and had “healthy financial reserves.” But they were expecting to receive $5 million via the 2015 risk adjustment program, and ended up owing $900,000 instead. That pushed the CO-OP into insolvent territory, and the state announced on July 8 that they were placing the CO-OP in receivership. All Oregon Health CO-OP plans terminated on July 31, 2016. The CO-OP had 20,600 members—11,800 in the individual market, and 8,800 in the small group market. Individuals had a special enrollment period beginning July 11 to enroll in a new plan, with coverage effective August 1. To get an August 1 effective date, members had to pick a new plan by July 31. Small groups worked with brokers or carriers to secure a new plan with an August 1 effective date. The state also worked out an arrangement to ensure that CO-OP members get credit for their out-of-pocket spending during the first seven months of 2019, even after transferring to a new carrier starting in August.
- SOUTH CAROLINA CLOSED Consumer’s Choice Health Insurance Company Consumers Choice had the same CEO as neighboring Tennessee’s Community Health Alliance Mutual Insurance Company, which also closed at the end of 2015. Consumer’s Choice had 67,000 members in 2015.
- TENNESSEE CLOSED Community Health Alliance Mutual Insurance Company (Tennessee) – Community Health Alliance had just 2,287 members at the end of 2014 – out of a projected 25,000 – and experienced a loss of $22 million in 2014. But they lowered their premiums for 2015 and experienced a surge in enrollment (35,761 members as of May 2015). Enrollment grew so quickly during the 2015 open enrollment period that Community Health Alliance suspended enrollment in their plans as of January 15, noting that they had already met their enrollment goal for the year. They proposed a 32.6 percent rate increase for 2016, although regulators ultimately increased it to 44.7 percent in order to preserve the CO-OP’s viability. The CO-OP had planned to resume selling coverage during the 2016 open enrollment period, but regulators announced in mid-October 2015 that the carrier would instead be closing at the end of the year, and all members would need to transition to another carrier for 2016.
- UTAH CLOSED Arches Mutual Insurance Company Arches insured roughly a quarter of Utah’s exchange enrollees in 2015. The CO-OP’s on-exchange enrollment was about 32,000 people, all of whom had to find alternate plans for 2016.
Struggles in 2014 and 2015
In July 2015, HHS released financial and enrollment data for the 23 CO-OPs, as of December 2014. The outlook based on the report was not particularly great: all but one of the CO-OPs operated at a loss in 2014, and 13 of the CO-OPs fell far short of their enrollment goals for 2014. The audit called into question the CO-OPs’ ability to repay the loans that they received from the federal government under Obamacare.
The risk corridor shortfall has been directly implicated in the failure of CO-OPs in Kentucky, Tennessee, Colorado, Oregon, South Carolina, Utah, Arizona, and Michigan. There is no way around the fact that such a significant financial blow is hard to overcome, particularly for carriers that were new to the market in 2014. Eight CO-OPs failed in the weeks following the risk corridor shortfall announcement, but that doesn’t mean all of the rest will follow suit.
Rather, it means that those eight CO-OPs were in serious financial jeopardy as a result of the risk corridor shortfall and other factors, and state Insurance Commissioners made the difficult decision to shut them down prior to the start of open enrollment, or shortly thereafter. It’s much less complicated to wind down operations in an orderly fashion in the last couple months of a year than it is to have a carrier become financially insolvent mid-year.
That, coupled with the late announcement regarding the risk corridors shortfall, explains the rash of CO-OP failures announced in late 2015 (It should be noted that it’s not just CO-OPs feeling the pain from the risk corridor shortfall; in Wisconsin, Anthem exited the exchange market in three counties and scaled back operations in 34 other counties, partially as a result of the risk corridor shortfall. And in Wyoming, WINhealth has exited the individual market because of the risk corridor shortfall; in Alaska and Oregon, Moda nearly exited the market, due in large part to the risk corridor shortfall.)
But with 12 out of 23 CO-OPs going under in 2015, it wasn’t surprising that the mood in late 2015 was relatively pessimistic regarding the CO-OP model. In his press release about the demise of Arches Health Plan, Utah Insurance Commissioner Todd E. Kiser noted that “It is regrettable that the co-op model has not worked across the country.” That didn’t bode well for the remaining 11 CO-OPs, but so far, all of them have survived the first several months of 2016, and at least three are having a profitable year.
But that comes at the end of a year that was not profitable for any of the CO-OPs. All 11 of the remaining CO-OPs suffered losses in 2015, amounting to a total of about $400 million (Evergreen lost the least, at $10.8 million; Land of Lincoln lost the most, at $90.8 million). The bulk of the losses were in the fourth quarter, indicating that consumers are trying to get as much value as possible from their coverage before the end of the plan year. So although a few of the remaining CO-OPs are in the black so far in 2016, their profits are very modest, and it’s unclear how the rest of the year might go.
The fact that lawmakers decided at the end of 2014 to retroactively require the risk corridors program to be budget-neutral was a significant blow to the CO-OPs. The CO-OPs – along with the rest of the carriers – had set their premiums for 2014 (and by that time, for 2015 as well) with the expectation that risk corridors payments would mitigate losses if they experienced higher-than-expected claims.
Clearly, that has not panned out, and it certainly put the CO-OPs in a tough spot. To clarify, HHS said in 2013 that the risk corridor program would NOT be budget-neutral, and that federal funds would be used to make up any short-falls; carriers set their rates for 2014 based on that.
But then in 2014, HHS announced in 2014 that they had made several adjustments to the risk corridor program, and that they projected “that these changes, in combination with the changes to the reinsurance program finalized in this rule, will result in net payments that are budget neutral in 2014. We intend to implement this program in a budget neutral manner, and may make future adjustments, either upward or downward to this program (for example, as discussed below, we may modify the ceiling on allowable administrative costs) to the extent necessary to achieve this goal.” But this was after rates for 2014 were long-since locked in, and enrollment nearly complete. At the end of 2014, congress passed the Cromnibus Bill, requiring risk corridors to be budget neutral, with no wiggle room for HHS.
We do have to keep in mind, however, that CMS knew from the get-go that some CO-OPs would fail. They expected at least a third of them to fail in the first 15 years, and that was long before the risk corridors program was retroactively changed to be budget neutral.
What are CO-OPs and how are they different?
Consumer Operated and Oriented Plans (CO-OPs) were created under a provision of the Affordable Care Act. CO-OP plans were proposed by Senator Kent Conrad (D-ND) when the original public plan option was jettisoned during the health care reform debate. Lawmakers added the CO-OP provision to the Affordable Care Act to placate Democrats who had pushed for a government-run, Medicare-for-all type of health insurance program.
At the time, progressives who preferred a public option derided CO-OPs as a poor alternative because they can’t utilize the efficiencies of scale that would come with Medicare For All, nor do they have the market clout that a single payer system would have when negotiating reimbursement rates with providers.
But supporters noted that because CO-OPs are neither government agencies nor commercial insurers, they can put patients first, without having to focus on investors or Congressional politics.
Instead of paying shareholders, CO-OP profits are reinvested in the plan to lower premiums or improve benefits (in 2014, only one CO-OP, Maine Community Health Options, had revenue that exceeded claims and administrative expenses – but the reinvestment of profits is the plan for all CO-OPs, once they become profitable). And customers’ health insurance needs and concerns become a top priority because the CO-OP’s customers/members elect their own board of directors. And a majority of these directors must themselves be members of the CO-OP.
CO-OPs are private, nonprofit, state-licensed health insurance carriers. Their plans can be sold both inside and outside the health insurance exchanges, depending on the state, and can offer individual, small group, and large group plans. But they’re are limited to having no more than a third of their policies in the large group market (a more lucrative market than individual or small group).
Lawmakers had originally planned to provide $10 billion in grants to get the CO-OPs up and running in every state. But insurance industry lobbyists and fiscal conservatives in Congress succeeded in reducing the total to $6 billion, and turning it into loans – with relatively short repayment schedules – instead of grants (and CO-OPs are not permitted to use federal loan money for marketing purposes). Then, during budget negotiations in 2011, those loans were cut by another $2.2 billion. And in 2012, during the fiscal cliff negotiations, CO-OP funding was reduced even further – and applications from 40 prospective CO-OPs were rejected.
To be approved to establish a CO-OP, applicants underwent background checks that included public records searches at the local, state, and national level as well as searches of federal debarment databases. Loan recipients are subject to strict monitoring, audits, and reporting requirements for the length of the loan repayment period plus 10 years.
Ultimately, the Centers for Medicare and Medicaid (CMS) awarded about $2.4 billion in loans to 23 CO-OPs across the country (there were 24 CO-OPs, but Vermont Health CO-OP never became operational. CMS retracted their loan in September 2013 – before the exchanges opened for the first open enrollment – because there were doubts that the program could be viable with Vermont’s impending switch to single-payer healthcare in 2017; ironically, Vermont pulled the plug on their single payer vision in late 2014).
Focus on cost savings and reinvested profits
How do CO-OPs increase cost efficiencies?
- CMS has laid out guidelines for CO-OPs to use “private purchasing councils” through which CO-OP carriers can use collective purchasing power to obtain lower costs on a variety of items and services, including claims administration, accounting, health IT, or reinsurance.
- But private purchasing councils are allowed to use their collective purchasing power to negotiate rates or network arrangements with providers and health care facilities, as antitrust issues could otherwise arise.
- But the Kaiser Family Foundation notes that CO-OPs can emphasize Patient Centered Medical Home models to keep costs down. (the PCMH model allows physicians to use health information technology and care managers to provide a full spectrum of care that’s coordinated among each patient’s various providers. The goal is to keep patients healthy – and out of the hospital – by using best practices and evidence based medicine. If PCMH doctors are successful, they qualify for bonuses).
- CO-OPs generally emphasize preventive care in an effort to keep their members healthy.
- A challenge for CO-OPs has been developing their provider networks. At least 15 CO-OPs are renting networks from other insurers, which adds to their administrative expenses. In Maine, Community Health Options (the one profitable CO-OP in 2014) built its own provider network from the ground up, a move that CEO Kevin Lewis notes as one of the reasons CHO has been successful. CO-OPs also have the option to hire doctors directly, rather than contract with them through provider networks (the upside for the doctors is that the CO-OP then handles the administrative details, and the doctor can focus on healthcare instead).
Will the remaining CO-OPs survive?
It’s too soon to tell. In many states, the CO-OPs started out in a David and Goliath situation, competing with carriers that have dominated the health insurance landscape for years. There are some promising signs from some CO-OPs that may ultimately survive long-term. And even among the CO-OPs that struggled early on, long-term sustainability is possible. Premiums that carriers – including CO-OPs – set for 2014 and 2015 were little more than educated guesses from actuaries, since there was very little in the way of actual claims data on which to rely (there was no data at all when the 2014 rates were being set, and only a couple months of early data available when 2015 rates were being set). Once the CO-OPs had more than a year of claims history in the books, they were able to be more accurate in pricing their policies for 2016, and that will again be the case for 2017.
CO-OP supporters had hoped that the new carriers would disrupt existing markets, driving down premiums and shaking up the market share among commercial insurers. Although CO-OPs struggled financially in their first year, average premiums market-wide were lower in both 2014 and 2015 in states that have CO-OPs than in states without CO-OPs. A GAO report found that average CO-OP premiums in 2014 and 2015 in most states tended to be lower than the average premiums across all carriers in those states. And enrollment in CO-OPs increased at a much faster pace than overall enrollment growth (across all carriers) from 2014 to 2015.
CMS acknowledged from the start that not all of the CO-OPs would be likely to succeed – just as a crop of new for-profit health insurance carriers wouldn’t all be expected to succeed. But over the next few years, CO-OPs will have an opportunity to refine their business models, reinvest any profits they make, and grow their enrollment – especially as grandmothered plans cease to exist by the end of 2017, increasing the number of people who need to purchase ACA-compliant plans.
The retention of grandmothered plans has benefited health plans that were already in place prior to 2014, since enrollees on grandmothered plans had to go through underwriting to obtain their coverage; on the other hand, new insurers like CO-OPs have had to contend with a population that’s less healthy than expected, partly because people with grandmothered plans have not yet all transitioned to ACA-compliant plans. In short, it’s too soon to know how the CO-OPs will fare. Will more of them collapse over the next few years? Probably. But some of them are likely to succeed and become integral parts of the health insurance landscape.
A timeline of the CO-OP closures in 2015 and 2016
In July 2015, Louisiana Health Cooperative announced that it would cease operations as of the end of 2015. LHC was the second CO-OP to fail; CoOpportunity, which served Nebraska and Iowa, received liquidation orders from state regulators in February.
At the end of August, the Nevada Health CO-OP announced they would also close at the end of 2015. And in September, New York officials announced that Health Republic of New York, the nation’s largest CO-OP, would begin winding down operations immediately, and that individual Health Republic of NY policies would terminate at the end of 2015.
On October 1, 2015 the federal government notified health insurance carriers across the country that risk corridors payments from 2014 would only amount to 12.6 percent of the total owed to the carriers. The program is budget neutral as a result of the 2015 benefit and payment parameters released by HHS in March 2014. And the “Cromnibus bill” that was passed at the end of 2014 eliminated the possibility of the risk corridors program being anything but budget neutral, despite the fact that HHS had said they would adjust the program as necessary going forward.
But very few carriers had lower-than-expected claims in 2014. So the payments into the risk corridors program were far less than the amount owed to carriers – and the result is that the carriers essentially get an IOU for a total of $2.5 billion that may or may not be recouped with 2015 and 2016 risk corridors funding (risk corridors still have to be budget neutral in 2015 and 2016, so if there’s a shortfall again, carriers would fall even further into the red).
Many health insurance carriers – particularly smaller, newer companies – are facing financial difficulties as a result of the risk corridors shortfall. CO-OPs are particularly vulnerable because they’re all start-ups and tend to be relatively small. All of the CO-OPs that have announced closures since October 1 have attributed their failure to the risk corridor payment shortfall.
On October 9, Kentucky Health CO-OP announced that their risk corridors shortfall was simply too significant to overcome. (The CO-OP was supposed to receive $77 million, but was only going to get $9.7 million as a result of the shortfall.) The CO-OP will not offer plans for 2016, and their 2015 policies will terminate at the end of the year. This means about 51,000 people in Kentucky will have to shop for new coverage for 2016, as they will not be able to keep their Kentucky Health CO-OP plans.
And then on October 14, Tennessee regulators announced that Community Health Alliance would also close at the end of the year. CHA stopped enrolling new members in January 2015, but it had planned to sell policies during the 2016 open enrollment period, albeit with a 44.7 percent rate increase. Ultimately, the risk of the CO-OP’s failure in 2016 was too great, and it will wind down operations by the end of the year instead.
Two days later, on October 16, Colorado Health OP was decertified from the exchange by the Colorado Division of Insurance, resulting in the CO-OP’s demise; Colorado Health OP’s 80,000 individual members will all need to transition to new carriers for 2016.
Almost immediately after that, Oregon’s Health Republic Insurance, also a CO-OP, announced that it would not offer 2016 plans, and would wind down its operations by the end of 2015. Health Republic currently has 15,000 members.
On October 22, The South Carolina Department of Insurance announced that Consumers Choice would voluntarily wind down its operations by year-end, and would not sell plans for 2016. Consumers Choice was run by the same CEO – Jerry Burgess – as Community Health Alliance in Tennessee. 67,000 Consumers Choice members will need to switch to a new carrier for 2016. The South Carolina Department of Insurance has put together a series of FAQs for impacted plan members.
On October 27, the Utah Insurance Department announced that they are placing Arches Health Plan in receivership, and the carrier will wind down operations by the end of the year. Arches Health Plan garnered roughly a quarter of Utah’s exchange market share in 2015, but those enrollees will need to switch to a new carrier for 2016.
On October 30, just two days before the start of the 2016 open enrollment period, the Arizona Department of Insurance announced that Meritus would cease selling and renewing coverage, and existing plans would terminate at the end of 2015. Healthcare.gov removed Meritus plans from the exchange website, and current enrollees – who comprise roughly a third of the private plan enrollees in the Arizona exchange – will need to obtain new coverage for 2016. Meritus was unique in that they allowed people to enroll off exchange year-round up until late-summer 2015. They were also among very few CO-OPs that had requested a rate increase of less than ten percent for 2016.
Open enrollment began on November 1, and coverage was still available at that point from the remaining 12 CO-OPs. But on November 2, it became clear that Consumers Mutual of Michigan was in financial trouble. The carrier announced that they would not offer plans in the exchange in 2016, although at that point, there was still a possibility that they would continue to offer plans outside the exchange. But on November 4, they announced that they would wind down their operations by the end of the year, and all 28,000 members would need to find new coverage for 2016.
In May 2016, state regulators in Ohio announced that InHealth Mutual would shut down and that members would have a 60 day special enrollment period to select a new plan.
In July 2016, state regulators in Connecticut announced that HealthyCT would shut down at the end of 2016 (employer groups will be able to keep their coverage through the renewal date in 2017, as long as the plan’s renewal date in 2016 was July or earlier).
In July 2016, state regulators in Oregon announced that Oregon Health CO-OP would shut down at the end of July 2016.
In July 2016, state regulators in Illinois announced that they were beginning the process of taking over Land of Lincoln Health and winding down the CO-OP’s operations. A special enrollment period will be created for the CO-OP’s 49,000 enrollees.
In September 2016, state regulators in New Jersey placed Health Republic Insurance of New Jersey into rehabilitation, and the CO-OP ceased selling new plans. Health Republic’s existing plans will terminate at the end of 2016.